HC Deb 30 July 1931 vol 255 cc2497-584

The Motion for the Second Reading of the Appropriation Bill has frequently been the occasion for discussions ranging over a wide geographical field. We had hoped it might have been possible at this time, when the House is about to disperse for a protracted period, to have some discussion upon the grave international matters which have occupied the attention of Ministers during the last few weeks. But, when the Chancellor of the Exchquer stated yesterday, in answer to a question by my right hon. Friend, that he could not usefully make any statement upon that subject at that time, my right hon. Friend did not press his question, because, of course, he recognised that an issue of this magnitude cannot be forced and that to attempt to probe too deeply into questions of such delicacy before they are ripe for publicity might do more harm than good. At the same time, I express the hope that, now that the Prime Minister has returned from his Continental journey, he may even yet, before the House separates, find some opportunity of giving us a little information as to the progress of the conversations which have been taking place and as to the prospect of a happy result of those conversations and a happy issue from a problem in which, necessarily, we in this country are very deeply interested.

In the meantime, however, I think that it will not be amiss if, on this occasion, I take the opportunity of making some brief examination of the general financial position in this country, and if I ask the Chancellor, in his turn, to give us some indication of what his attitude is towards what, I think, is generally recognised as a position of some seriousness and gravity. It is now some three months since the Chancellor opened his Budget. At that time I expressed, and on more than one occasion since I have expressed, the view that that Budget was, upon its financial side, open to very serious criticism, but, owing to the fact that it contained some novel and highly controversial proposals in regard to the taxation of land values, I do not think that as much attention has been given to that side of the Budget as it was entitled to and as it ought to receive. I do not accuse the Chancellor of having deliberately emitted a smoke screen in order to conceal the essential unsoundness of his Budget, because I know that the question of land value taxation is one which has long been a cherished hobby of his, and we all know that he clings very tenaciously to his hobbies. But that has, in fact, been the effect of those proposals, and I take it up again now, because I think that various things which have happened since the Budget was first introduced have gone far to confirm and to strengthen the views which I expressed at the time when it was introduced.

May I shortly recapitulate some of the criticisms which I thought it necessary to make. Of course, the most important is that which concerns the relations between the Exchequer and the Unemployment Insurance Fund. I pointed out more than once that, as it seemed to me, the Chancellor was really faced with this dilemma, that either he must go on permitting the borrowing from the Exchequer by the Unemployment Insurance Fund of such large sums that it was difficult to contemplate that they could ever be recovered from the Fund with all the implications that course brings with it, or else he must contemplate the provision for those persons who might be thrown out of insurance of considerable sums from the Exchequer which were not provided for in his Budget. We all know that the Chancellor has, in fact, adopted the first of those two courses, but, in doing so, he has only postponed the inevitable reckoning which must come sooner or later, and which the longer it is delayed the more serious it will be. The Chancellor showed a deficit of £37,500,000, and out of that £37,500,000, no less than £30,000,000 has been taken from sources which cannot be tapped a second time. There is the £20,000,000 from the Dollar Exchange Fund, and there is the £10,000,000, which is obtained by anticipating certain parts of the Income Tax, but the £30,000,000 of expenditure which those items are intended to meet has not been stopped. That is going on and, therefore, we have to face the fact that in another year that £30,000,000 must be provided from some new sources, because the sources from which it was made this year will not again be available.

The third point to which I directed his attention was what seemed to be the sanguine nature of the estimates which the Chancellor made of the revenue he expected in the current year. Will anybody in this House to-day, after the events of the last few months, say that I was wrong in expressing that view? We have now been able to see the actual revenue returns for the first three months in the year. Let me just bring the attention of the House to one or two points to be examined in those returns. Take, first of all, the Income Tax. The Chancellor estimated that there would be a deficiency as compared with last year of about £8,000,000 in receipts from Income Tax. The returns in the first quarter show that Income Tax is down as compared with the corresponding quarter of last year by some £2,250,000. At first sight and on a superficial view that might seem to indicate that the total deficiency to be anticipated at the end of the year was not greatly in excess of that which the Chancellor had estimated, but hon. Members generally are quite aware of the fact that the bulk of the Income Tax comes in the last quarter of the year. When you observe that the total amount of the Income Tax which actually came in during the first quarter is only £20,000,000, or about one-twelfth of the total amount estimated to be received from Income Tax during the year, you will see that the deficiency, already amounting to £2,250,000, bids fair, if that proportion is maintained, to be something very much more substantial than that which the Chancellor allowed.

What is the next large item of revenue? It is Customs and Excise. There the Chancellor estimated a deficiency, as compared with last year, of about £7,500,000. There, again, the returns for the first quarter show a diminution of £2,250,000, and we cannot, therefore, hope that we are going to escape probably a larger deficiency on the items of Customs and Excise than that estimated for by the Chancellor. The Estate Duties were expected to produce a considerably larger sum than last year. The increase budgeted by the Chancellor was £7,000,000 in the year, but the first quarter showed, not an increase in the yield of the Estate Duties, but a decrease of £3,250,000, and I de not know any reason that should lead us to suppose that the decrease which has shown itself in the first quarter of the year is going to be counterbalanced by a considerable increase in later quarters of the year.

Finally, if we allude to the Stamp Duties, which were estimated to give an increase of revenue of three and a third million pounds, in the first quarter of the year they showed an actual diminution of £1,300,000. Altogether, taking the whole of the returns for this quarter, there is a drop of some £7,000,000 as compared with last year. That figure alone, I venture to think, justifies the view which I expressed when the Chancellor first opened his Budget, that he was unduly sanguine in his estimates of the revenue to be expected this year.

4.0 p.m.

Let us look for a moment on the other side of the account. It will be remembered that the Chancellor of the Exchequer made no allowance in his Budget for any Supplementary Estimates. He budgeted for a nominal surplus of £134,000. I said at the time that all our past history showed that that was nothing but a gamble, and as far as we have gone that statement has been justi- fied up to the hilt. Already we have had Supplementary Estimates presented to the House amounting to £812,000. We have an increase in the amount which is to be devoted to transitional benefit at the cost of the Exchequer amounting to £5,000,000, and there is the liability which the Government have estimated in connection with the Hoover proposals amounting to another £11,000,000. Therefore, instead of a nominal surplus of £134,000 at the end of the year, we have already got to expect that there will be a substantial deficiency. Our anxieties do not stop there. What is going to happen in the financial year after this? My hon. Friend behind me has endeavoured to make a protest against the delay in the publication of the Economy Committee's Report, but if one is to believe the sort of rumours or the sort of anticipations—intelligent anticipations, it may be—of what is in that report, there is expected to be a deficiency in the following year of some very alarming proportions. I am not going to make any estimate myself of what may happen in that year, but I would like to recall to the recollection of the House what the Chancellor of the Exchequer himself said on the Subject when opening his Budget on 27th April last. He said: I do not for one moment conceal my opinion that the position continues to be grave, and that the finances of next year may present difficult problems. Indeed, if the world depression fails meanwhile to lift, reduction of expenditure will be the only alternative to increased taxation. For these reasons, it will be for the House to take carefully into account the proposals that may emerge from the work both of the Economy Committee and the Unemployment Commission."—[OFFICIAL REPORT, 27th April, 1931; col. 1408–9, Vol. 251.] I would like, in passing, to make a protest with all my might against that expression used by the Chancellor: if the world depression fails meanwhile to lift. I do protest at the implication which appears to be conveyed by those words that this great country, as rich to-day as it ever was in enterprise, in skill, in courage and in natural resources, can do nothing but drift helplessly before the storm. I believe that we can do a great deal to help ourselves, provided two things are present, first, that our people have given them a fair chance; and, secondly, that they have that confidence in the Government of their country without which no industry can hope to prosper.

I was looking the other day at some interesting figures published in the Board of Trade Journal for last week and, although they are not agreeable reading, nevertheless I think they contain a lesson for us. There is a comparison of imports and exports of the principal industrial groups for the first six months of 1931 as compared with the corresponding period in 1924. I say that they are not very agreeable reading because in these cases—I have 14 groups in front of me—the figures range from an increase in imports of 21 per cent. and a decrease in exports of 47 per cent. in the case of iron and steel manufactures, and to an increase in imports of 151 per cent. and a decrease in exports of 1 per cent. in electrical goods. But there are two groups of industries in those 14 which show rather a different position. The first one is silk and silk manufactures—a partly protected industry—and in that case the exports show a decrease of only 5 per cent., whereas the imports, instead of showing a great increase, show an actual decrease of 16 per cent. To give an even more striking example in a group, namely, vehicles, which includes motor cars, the imports show a decrease of 68 per cent. and the exports an increase of 73 per cent. I will not say more about that than that those figures, and especially the figures of those two groups compared with the disastrous results in other groups, do justify my contention that, given a fair chance, our manufacturers are able to hold their own with the world.


Can the right hon. Gentleman also give us the figures of the other safeguarded industries?


No, Sir. The hon. Member can, no doubt, get the figures from the Board of Trade Journal. But I will say this, that although the figures may not be so large in the case of other safeguarded industries, I do know that, taking the figures of the safeguarded industries and comparing them with the figures of the non-safeguarded industries, as a whole, there is a striking difference in favour of the safeguarded industries.

I return to the Chancellor's words, which I quoted just now. The House will see that he presented us with three- different alternatives. The first was a return to prosperity, whether due to the lifting of world depression or due to our own efforts; the second was increased taxation; and the third, reduction of national expenditure. I am not one of those who believe that the prosperity of this country has gone for ever. I believe, indeed, that the time at which prosperity returns, and the extent to which it returns, may depend very largely upon ourselves, and especially do I believe that these things will depend very much upon how far we can induce the other parts of the Empire to join with us in a close combination in trading. But, even on the most optimistic estimate, that return to prosperity will take time, and the situation is urgent and critical. We cannot wait, and, therefore, for an immediate remedy for the evils which we see in front of us, we cannot, obviously, depend upon the return of trade prosperity.

Let me come, then, to the next alternative of the Chancellor—the question of taxation. Would anybody suggest for one moment that it is practicable now to make some further increase in taxation with its consequent burden upon industry? I received a little while ago a communication from the National Council of Industry and Commerce, in which, in an interesting analysis, they indicate their view that, during the last 12 years, an average of upwards of £139,000,000 has been taken every year from industry by taxation. The Chancellor of the Exchequer himself has recently informed us that the taxation for the year 1930–31 amounted per head of the population to £16 6s. 5d., which, I believe, is actually 10s. more than it was in the preceding year. I think it is clear to every Member of the House that additional taxation is not a source to which one can turn for the solution of our difficulties.

Then we are left with the Chancellor's third alternative—the reduction of national expenditure. Economy is never a popular matter, whether it be economy for the individual or economy for the State. Nobody likes the idea of having to give up luxuries or pleasures to which he has grown accustomed, but, in national economy, I believe that the real grievance arises not so much from actual hard- ships which may be suffered by a man who is called upon to reduce his standard of living, as from a sense of injustice in the belief that he is being asked to make larger sacrifices than he ought, or that somebody is being let off lighter than he ought to be. Those beliefs on the part of an individual or a section of the community may be totally unfounded, but they are natural, because the wish is father to the thought in this case, and, moreover, they are views which are frequently fed and fostered by people whose motives are by no means only sympathy for the unfortunate victims.

But, great as are the difficulties in the way of Governments trying to bring about reductions of national expenditure, yet those are difficulties which, in great crises, can and must be overcome, and I go further and say, they are being overcome by other Governments. Look at the position in Germany. Germany, like this country, has been overspending in the last few years. Now she has come up against the position when she realises that it is necessary to pull in, and she is making tremendous sacrifices to-day. Great cuts are being made in the income and earnings of all sections. In Australia, a similar process is going on. I find that the actual reduction of expenditure which is being contemplated by the Federal Government of Australia, leaving out of account the wage cuts which have been necessitated by the Federal Wages Board, and leaving out of account the reduction of interest which is being taken by the holders of fixed interest-bearing securities, there remain reductions in national expenditure which, if you translate them into the proportionate amount in this country, would represent a reduction in our Budget of something like £110,000,000 a year.

What the people of Germany are prepared to face, and what the people of Australia are facing, I am convinced that the people of this country are ready to face, if they are convinced that it is necessary. The time has come when it is necessary that people should be told the truth. We read to-day of company directors being prosecuted because it is alleged that they have not given sufficient information to their shareholders. I ask, is it not equally important that the people of this country should have sufficient information to enable them to judge the true position of the national finances, to enable them to see where they stand, and to enable them to insist upon the requisite action being taken?

The people of this country have got to realise that foreign confidence in the credit of this country has been shaken, because they have watched the expenditure of this country growing faster than its income, and the restoration of that confidence can only be brought about when the foreigner is convinced, first, that the people of this country realise the situation, and, secondly, that they are going to have the courage to take the necessary steps to deal with it. At bottom, I believe there is no foundation whatever for this want of confidence in British stability. I would like to remind hon. Members of a very interesting passage in the report recently issued by the Macmillan Committee. After giving a summary of the foreign liquid resources in London and the British acceptances on foreign account for the last five years, they say that the net liability of London has diminished from £279,000,000 to £254,000,000. They describe those figures as somewhat unexpected and as reassuring, and they conclude the chapter on the gold standard in these words: The underlying financial facts are more favourable than had been supposed, and that Great Britain's position as a creditor country remains immensely strong. I believe that that statement represents nothing but the truth. I would like to quote further words which seem apposite to the present situation, because they describe very tersely the immense advantage which has brought the City of London to its present powerful and influential position in the world. They say: The City of London can still claim to be the most highly organised international market for money in the world. Its freedom and elasticity are without parallel. Its accepting houses and its discount market provide unequalled facilities for the financing of national and international commerce; whilst the former, in their capacity as issuing houses, play a large part in the placing of international issues of a long-term character. Lastly, the great British joint stock banks have the pre-eminent merit that their financial strength and liquidity are beyond any question. It may be that we are too far removed in this country from the days of great banking failures and panics, and the ruin following from the destruction of confidence, to esteem at its proper worth the enormous value of an impregnable banking system. Those are indeed mighty sources of strength, but let us not forget that the strongest system that ever was invented or ever has existed in the world could not withstand indefinitely a process where its national expenditure is in excess of its national income. If when the report of the Economy Committee is published, it gives the public an unpleasant shock, it may perhaps prove to be a salutary tonic if it stimulates them to realise the true situation and to take the necessary steps to put their house in order.

I have finished what I wanted to say. I have endeavoured very carefully to abstain from anything in the nature of recrimination, because I feel that a time like this, when the eyes of others are upon us, watching to see if there is not some fatal flaw in the structure of this old tower, which has withstood so many storms and earthquakes, is not the time to emphasise party differences, but rather the time to make an appeal for appropriate action on the part of the Government, and for a consideration of the situation, with all that seriousness and care which it demands. I have expressed my belief in the essential soundness and strength of our financial system. I recall those well-known lines: Nought shall make us rue, If England to itself do rest but true. To be true to England is not to shut one's eyes to unpleasant facts, not to sit still and see whether the world depression will pass away. It is a time now for vigorous and courageous action. I recognise that I cannot ask the Chancellor of the Exchequer this afternoon to commit himself to any specific economies. It would not be reasonable to make any such request, but I do ask him, as the guardian for the time being of the national finances, to give us some assurance that he realises the seriousness of the situation, that he realises the urgent need for a reduction of national expenditure and that he will devote the weeks during which this House will be dispersed, to a thorough, an exhaustive and a determined examination of the steps that may be necessary to put matters right.

The CHANCELLOR of the EXCHEQUER (Mr. Philip Snowden)

I am much obliged to the right hon. Gentleman for taking advantage of this occasion to call the attention of the House to the national financial situation. I am especially grateful to him for the restraint which he has shown in dealing with the matter. This is a time when a lightly spoken word or even a wrongly turned sentence might have the most serious consequences. It is especially necessary at this time to be cautious, because of the international situation, a situation in which some of the Continental countries are very deeply involved. I am grateful to the right hon. Gentleman, because he has responded to the appeal that I have made that it would probably be unfortunate in the interests of the negotiations which are still going on if any public debate took place at the present time. Investors, as we all know, are naturally nervous people and the slightest suspicion of the insecurity of their investments is apt to lead them to adopt courses which are not justified by the actual facts.

The position of Great Britain in this respect is always peculiarly vulnerable, because we are the great money market of the world, and it is therefore always essential that confidence throughout the world should rely on the strength of the London money market. Foreign credits are held in London to the extent of probably hundreds of millions of money, and the recent incidents abroad have shown what consequences may arise from even an unfounded rumour. It is known, of course, that London has heavy foreign credits and commitments. In view of the present financial position of other countries, in which it is known that the London market is to some extent involved, there naturally is a possibility, to put it no higher, of a hesitation in regard to our position. Therefore, I feel extremely grateful to the right hon. Gentleman for the testimony which he has paid to the fundamental soundness of the financial position of London and of the country generally.

After these introductory observations, may I turn to some of the points raised by the right hon. Gentleman in his speech? He began by a criticism of the Budget which I introduced three months ago, and said that it was unsound in many of its proposals. He referred first to the question of unemployment insurance. We have had many Debates on that subject within the last few months. It now appears to be accepted by the Opposition that the borrowings in connection with the Unemployment Insurance Fund should be regarded as analogous to the borrowing that took place for the conduct of the War. I do not accept that argument or that contention. It may be that there are doubts whether the Insurance Fund will ever attain once more to a condition of prosperity which will enable the money borrowed to be repaid, but I do not think we are at all justified at the moment in regarding that as being a national burden or a national debt at all comparable with the War Debt. I have in this House on many occasions expressed my opinion that if the position of the country was such that the unemployed could be provided for out of current revenue, that would be a much sounder course to pursue, but I am inclined to think that even hon. Members opposite would hesitate to approve of such an increase in taxation as would be necessary if the unemployed were to be provided for wholly out of current revenue.

The second criticism of the Budget was in regard to the way in which I had obviated the need for increased taxation by appropriating sources of revenue for the current year which will not be available next year. I explained, when I put that proposal before the House as an alternative to increased taxation, that those sums would not be available next year and that possibly if there was no very considerable improvement in the industrial situation, recourse to increased taxation would be necessary next year, unless we could adopt economies which would obviate that necessity. I think I also warned the House that the Budget situation next year in the event of neither of those two things happening, would be of a very serious nature indeed. I do not in the least complain of what the right hon. Gentleman said in regard to that point. It is true that I expressed a hope that there would be a considerable improvement in trade such as would modify the Budget position, but I went no further than to express the hope. Unfortunately, so far the hope has not been realised, and I tell the House quite frankly that the outlook for the Budget of next year, unless very considerable economies can be effected, is a very serious prospect indeed.

The right hon. Gentleman pointed out quite rightly that since the Budget was presented the House of Commons has committed itself to a very considerably increased expenditure amounting to £7,000,000 or £8,000,000 and that no provision was made in the Budget for supplementary expenditure of that character. As a result of the Hoover proposals or rather as a result of the acceptance of the Hoover proposals there is an additional burden this year of something like £11,000,000. From these figures the House will realise that the outlook for the Budget of next year is very serious indeed and it is a position to which the Government will have to face up, and a position which the House of Commons itself and the country will have to face. The right hon. Gentleman referred to my estimates of revenue for the current year as being on the sanguine side. Apart from one figure of estimated revenue, and that is the Stamp Duty, I think that at the time, and in view of the outlook at the time it was made, I was justified in all the items of revenue which I put before the House in my Budget Speech. I do confess that in regard to the Stamp Duty—I do not think I used the word which the right hon. Gentleman attributed to me, a gamble—


I did not attribute it to the right hon. Gentleman.


But in regard to the Stamp Duty I do confess I formed that estimate in the expectation that after two or three years of depression on the Stock Exchange there would be some revival, but no one knows better than the right hon. Gentleman that we cannot estimate the revenue of the year on the figures of the first quarter of the year and the reference he made by way of comparison to the yield of Income Tax during the first quarter and the expected yield over the whole year is wholly irrelevant and has no bearing on the situation. It is true as regards Customs and Excise that so far the revenue has not come up to expectations. The industrial situation has something to do with that. As a matter of fact the trade position does particularly affect the Customs and Excise revenue. Further, although I did not base my estimates upon any considerable revival of trade, I did not anticipate that trade depression would deepen and that there would be three or four months after the beginning of the present financial year little prospect or any likelihood of the depression lightening. The right hon. Gentleman then turned to the question of expenditure but I will delay dealing with that point until I have touched upon one or two other matters arising out of his speech.

The budgetary position in this country is by no means exceptional, indeed I believe it is the fact that with perhaps the exception of one country our budgetary position is more satisfactory than of any other country in the world. The United States of America has just closed its financial year with a deficit of £200,000,000, one thousand million dollars, and the Canadian Budget, which was presented a month or two ago, shows a deficit which on the proportion of their Budget to our own would represent a deficit in this country of something like £60,000,000. New Zealand, which has hitherto been one of the most prosperous of our Dominions, recently closed its financial year with a position very similar to that of Canada. I mention these matters because they are apt to be forgotten. There seems to be an impression abroad that the budgetary position of this country—it seems to be rather prevalent—is in a condition of bankruptcy. Nothing could be farther from the truth than that. It must be remembered too what financial burdens this country has to carry, far more than any other country. We largely financed the War, we kept our Allies in the field and we provided them with money, and then after the War, in a fit of quixotic generosity, we forgave them from four-fifths to two-thirds of the debt which we had incurred in helping them to continue the prosecution of the War.

It is of course absolutely essential for the maintenance of the credit of this country that there should be a balanced Budget. It may be difficult to balance it. After my experience I am rather chary of making definite pledges, and therefore I will not go beyond saying this: that I shall make every possible effort to balance next year's Budget, although it may involve rather disagreeable consequences to certain classes and to certain people, but the necessity of doing that is so important and so urgent that as far as I am concerned it will have to be undertaken. The consequences of an unbalanced Budget are serious, not only upon foreign opinion but very serious to the credit of our own country and to our own industries. The bank rate to-day has gone up by another 1 per cent. That is an increase of 2 per cent. within a week. It affects us in a great many ways. It affects me peculiarly seriously. I made an estimate of the cost of Treasury bills this year and up to the present time the cost of those bills has been considerably below that estimate. Therefore a very large saving has been made under that head during the first three or four months of the present financial year. Unfortunately, the increase in the bank rate has raised the cost of Treasury bills above my estimate and therefore that may be another item in the Budget estimate which will justify the right hon. Gentleman nine months hence in criticising the soundness of the Budget estimates I made. This of course has a bad effect on industry and a very threatening effect on prices, upon wages and upon employment. It is not due to anything in our own financial system that these increases in the bank rate have been necessitated but owing to the unparalleled withdrawal of gold which has taken place in the last two or three weeks.

The right hon. Gentleman said that there were three ways of balancing the Budget, or rather three courses which might be adopted. The first course was to encourage trade and consequently increase revenue from taxation. Secondly, that we should do it by increased taxation—but that course the right hon. Gentleman deprecated. I was rather surprised to hear him say that, because I thought it was the main plank in the programme of the party opposite to increase taxation. We have been told by the right hon. Gentleman many times that he has ready an emergency general tariff. I hope he does not think—he will pardon the word—that he can fool this country into the belief that taxes which are levied upon articles which they consume are not just as much taxation as taxation which is directly levied.


I must remind the right hon. Gentleman that on the Appropriation Bill we may discuss the financial position of the country, but we cannot enter into questions of taxation.


I am of course aware of that, but I was only replying to the point made by the right hon. Gentleman.


I think the right hon. Gentleman is getting much beyond the point put by the right hon. Member for Edgbaston.


Perhaps I was not quite so clever as the right hon. Gentleman in insinuating rather than in stating. There are only two ways in which we can deal with the present situation, and one is to increase taxation: the other is by a reduction of expenditure. As I am not allowed to deal with the matter of increased taxation, I must confine myself to reduction in expenditure. The House will remember the Debate on this subject in February of this year. The outcome of that Debate was the passing of a Resolution calling for the setting up of a committee to inquire into the possibility of reducing expenditure. That committee, as the House knows, has just reported. The report is not yet in the hands of hon. Members, but I hope it will be by to-morrow. That Resolution for the setting up of that committee was a Resolution supported by all parties in this House, and therefore the House of Commons has a special responsibility for dealing with the report of the committee. No Government, and especially a Government like ours, which does not command a majority in the House of Commons—[Interruption]—of its own party, could take the full responsibility for submitting to the House of Commons proposals for a reduction of expenditure of a drastic character.

The right hon. Gentleman said quite frankly that while economy in the abstract is always popular, specific proposals for economy are always opposed by either sections or by the House of Commons as a whole. We have had a recent experience of that. The Government are taking the report into very serious consideration, and they will be prepared to submit to the House of Com- mons, when it reassembles in October, the result of their consideration and de-liberations. As I have said, the responsibility for carrying out any recommendations that will be made must be shared by the House of Commons as a whole. The right hon. Gentleman said that he would not expect me this afternoon to go further than I have just gone. As hon. Members will see to-morrow, the report of the committee is very voluminous; it occupies something like 300 pages, and it will require long consideration; and I assure the House once more that that full consideration will be given to it.

I think I have dealt with most of the matters that were raised by the right hon. Gentleman. I notice that when reference was made to expenditure my hon. Friends behind me interjected remarks about our War Debt. This, of course, is the greatest of all the burdens upon the national finances. I have carried through a number of comparatively small conversion operations which have effected some saving, and perhaps I should not be indiscreet if I say—I hope that no serious consequences will result from my confession—that I have prepared a scheme for a huge conversion of the War Loan, by which a very large saving in interest on the debt will be effected. Had it not been for recent financial developments that conversion operation would have been floated before now. I am very anxious therefore, on that account alone, to see the position recover, and at the first favourable opportunity that conversion operation will be launched.

As I said just now, if it is a success, as I believe it will be, if launched in favourable circumstances, it will effect such a saving in our national expenditure as will go no mean way towards meeting the inevitable need for economy in next year's Budget. But I want to conclude by associating myself with what the right hon. Gentleman said, or rather repeating my association with the words of the right hon. Gentleman in regard to the soundness of our national position. I say this mainly to be heard, as I hope it will be heard, by foreign opinion, and I assure them that the position of this country is fundamentally sound. London still remains the best market in the world for foreign investments, and so far as I am concerned and so far as the Government are- concerned, we shall take every possible step to ensure that the proud and Sound position of British credit shall be in no way impaired.


The Chancellor of the Exchequer has delivered one of his impressive warnings to the House. I am bound to say that the House does not always follow the advice which the right hon. Gentleman gives. I may be able to say things which the Chancellor in his responsible position, and the right hon. Gentleman who preceded him have not said—things which will not have that injurious effect on our credit of anything that comes from the Treasury Bench. It seemed to me strange that the Chancellor should have stated that the most lightly spoken word or wrongly turned sentence might have far-reaching financial importance. Personally I cannot think that London is in such a weak position that a wrongly turned sentence would be able to have that effect. 80 far as I am concerned I can take a more detached view than the Chancellor or the right hon. Gentleman who preceded him, in dealing with this financial question. I have not been associated with the finances of the country, but 10 years ago I moved a Resolution in this House protesting against the great Government expenditure then going on. For 10 years we have had lavish and extravagant expenditure. The Coalition Government, which was headed by my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George), whom I hope we shall soon see back amongst us, laid the foundation of expenditure upon a very wide basis. I remember moving a Resolution, which was seconded by Sir John Marriott, in favour of rationing the Chancellor of the Exchequer. But the Coalition Government went. Then we had Mr. Bonar Law with his policy of tranquillity.

After that we had a series of General Elections, at which every kind of promise was made to the electors. The late Chancellor of the Exchequer suggested that it cost about £10,000,000 to implement the promises that were made at each General Election. Next we had four and a-half years of Conservative Government, and at the last Election I was told that we had had a heaven-sent Chancellor of the Exchequer. [HON. MEMBERS: "He was!"] I understand that he will not be the next Conservative Chancellor of the Exchequer, should circumstances so arise that the Conservatives are here in a majority. I do not know whether Mr. Gandhi will ask him to go over to advise him, but he will have less chance here than in India. We have been spending ever since. The late Chancellor of the Exchequer dealt industry a staggering blow when he established the gold standard in 1925. Since then we have had a period of falling prices. It is quite impossible—it is no use minimising the fact—for us to pay our War debts, our taxes and our rates, with these falling prices. The American debt was to be paid in gold. We bought wheat from America at something like 2.21 dollars or about 10s. a bushel. We are paying with wheat at about 3s. a bushel. I warn the House that producers in this country cannot go on paying these huge rates and taxes unless there is an increase in the price of primary products.

Take the question of wheat. In. 1925 the price of wheat was three bushels to the pound. Now it is six bushels to the pound. Farmers cannot go on like that. The price of wool has dropped even more. I maintain that unless we really take this question of the price of primary products into consideration there will be a default, in spite of what the Chancellor of the Exchequer may say, on our liabilities. The right hon. Gentleman who opened the Debate talked of tariffs. [HON. MEMBERS: "No! "] He talked of something in that direction; he hinted at it. Would any possible taxation put on in this country enable, say, the Chinaman or the peasant in India, or the producers in Australia, to buy British goods?


The right hon. Gentleman is going perilously near dealing with proposed taxation, and that would not be in order on the Appropriation Bill.


I do not wish to be out of order. I merely repeat that unless the prices of primary products improve, Australia, India and China cannot become potential customers for the manufactures of this country. The Chancellor of the Exchequer told us some time ago that things would right themselves. I would like to know how they are going to right themselves, and I want to know from the point of view of the producers. The right hon. Gentleman said on 23rd February of this year: One immediate cause of trade depression was the tremendous fall in the last 12 months in the wholesale price of primary commodities. This, however, would right itself by and by. When is that "by and by" to come? It is a serious matter. I cannot see that the Government are pursuing any policy to help the producers of this country, and it is the producers of whom we have to think. What has been the Government policy? The Chancellor said just now that they have been increasing the national liabilities. There is more spending. The other day the Government even proposed to guarantee the credit of India. I do not think they realise that, after all, it is possible to strain British finance to breaking point. There is more than that. I take the strongest exception to the Government action in spending money on State experiments. To my mind that is wholly wrong. I am an old-fashioned Liberal, and I do not believe in these new State experiments. I base my opinion upon the opinion of Mr. Gladstone, which it is well that in these days the House should consider. Mr. Gladstone said at the latter end of his career: I am thankful to have taken a great part in the emancipating labours of the last 60 years. Of one thing I am and always have been convinced, that it is not by the State that man can be regenerated and the terrible woes of this dark world effectively dealt with. 5.0 p.m.

That is my opinion entirely. I believe that the more the State meddles in industry and the more it spends, the worse it is for mankind. [An HON. MEMBER: "Cheer up!"] The Chancellor of the Exchequer was not entirely in a joyous mood, and I think that I am ringing wedding bells in comparison with his speech. We have to consider that in this country we are to-day consuming very largely what we are not producing. Take all the tax and rate receivers. What do they produce? Do they produce anything for the food which we must import from abroad? Take again the unemployed, of whom there are 2,660,000, all consumers, not one of them producers, or doing a hand's turn for the food which we are importing for their consumption. During the last six months our imports were something like £418,000,000 and our exports £235,00O,0OO. We have made up the balance hitherto by foreign investments, shipping, and foreign commissions. It is quite certain that the income from our foreign investments must have very seriously declined; it is quite certain that shipping has never had a worse time and that the revenue from shipping must have declined; and foreign commissions must also have declined, because of the inability of the London market to lend.

Last year, according to the Board of Trade returns, we had a favourable balance of trade of £39,000,000. This year it is more than likely that there will be an actual deficit, considering the great decline in shipping earnings, in foreign investments, and in commissions. How are we to pay for these huge imports that are coming into this country? "We can only pay for them by exports. We cannot go on exporting gold indefinitely, and the Chancellor of the Exchequer has told us just now that this unprecedented circumstance has caused the Bank Rate to be raised two points in two weeks. Therefore, I take the most grave view of the situation.

Our production to-day is not keeping pace with our consumption. We are consuming more than we are producing, and if that goes on, there is only one end to it, and that is that the imports will not be paid for. We must have enormous quantities of food and of raw materials. How the crisis will be manifested is beyond my power to say, but every delay is dangerous. The trade of the country is gradually diminishing, and the Chancellor of the Exchequer has told us that there will be a very great Budget deficit next year. How that is to be met I do not know, and I do not think anyone can tell us, but I am quite certain that anything like an increase of direct taxation would be like pouring petrol on a fire, for the direct taxpayers to-day cannot stand any further taxation without grave effects on the country.

We have had an Economy Committee set up. Each one of us knows in our constituency that it is a very easy matter to talk of economy, but it is not so easy to practise it. I do not know what the proposals of the Economy Committee will be, but if they are put into operation, undoubtedly there will be great political agitation. I am extremely sorry that that should be so, but I would really like to see in this country a political moratorium, in the sense that if the Chancellor of the Exchequer would pledge himself to put into operation all the proposals of that Economy Committee, no other political party in the country should endeavour to make political capital out of it. It may be too much to hope for, but I would gladly subscribe to such a doctrine; and, believe me, unless something like that is done, we shall be in a position in this country like that in Germany when the collapse came and there was no money with which to pay. We are going on at a rate which means that we are so penalising the producer that we shall not be able to pay for the imports of food which we must have.


The right hon. Gentleman the Member for South Molton (Mr. Lambert), who has just sat down, has been a very long time in this House. His opinions have always been steady and definite, and he stands to-day where he did. I entirely agree with him that the present situation is one which needs to be dealt with, and that a negative policy of waiting for improvement will be of no avail. The trade of this country—and we ought to face the fact—is a declining trade. Even before the War there was a tendency downward. We were being pressed by rival manufacturers in the foreign markets of the world, and to some extent in the markets of our own Empire; and since the War that process has been intensified. It is the custom to complain that we are living in a time of declining world trade, but examination of the official information as to the whole of the trade of the civilised world, so far as it is recorded, shows that the interchange of exports in the world as a whole from 1924 to the end of 1929 increased. While the imports of all the nations increased from £6,880,000,000 in 1925 to £7,415,000,000 in 1929, purchases by the United Kingdom declined from £1,320,000,000 to £1,220,000,000. This decline was wholly due to decreases in our purchases of foodstuffs and raw materials, our purchases of manufactured goods actually increasing during that period. On the other hand, while the total export trade of the world increased from £6,490,000,000 to £6,815,000,000 between the years 1925 and 1929, the United Kingdom's share of that export trade fell from £773,000,000 to £729,000,000. Again, the fall in our export trade was mainly due to the great decline in our exports of manufactured goods, the decline in our exports of raw materials amounting to nearly £2,000,000 in each of the categories of coal, wool, oil seeds, gums and resins.

I do not think I need further trouble the House with figures on this subject, except that I will add that these are taken from the official returns dealing with these matters, which may be verified by anyone who takes the trouble to put these facts together and to analyse them. The export trade, on which we must very largely live in this country, fell heavily. I will now take the figures for a year later, 1930, for this country only, and not for the world at large. The imports of manufactured goods increased in this country from £299,000,000 to £344,000,000, the exports of our manufactures at the same time fell from £573,000,000 to £439,700,000. The ominous fact is that nothing effective has been done to deal with this situation, which has been going on for some time. The Conservative Government, it is true, put on some Safeguarding duties, which the present Government immediately took off, and—

Mr. DEPUTY-SPEAKER (Sir Robert Young)

I understand that Mr. Speaker has already intervened to point out that there can be no discussion on the question of tariffs in this Debate. It is necessary that I should call the right hon. and gallant Gentleman's attention to that fact.

Colonel GRETT0N

I did not apprehend, but I will submit to your Ruling, that we might not deal with tariffs and not even mention the name. I am not going to discuss them, because I know that that would be out of order, because it would mean discussing legislation.


I understand that Mr. Speaker barred discussion of tariffs and also of taxation.


It makes it a little difficult, because tariffs are taxation of somebody. I want to say a word with regard to the position of Germany, because it is the German situation which has precipitated the present occasion and led to negotiations and, as far as I can gather, great apprehension at any rate on the part of the Government of this country. We have seen them running to and fro; we have seen the statesmen of Europe and some of those of the United States of America coming to London; and we have seen bankers making journeys, of which I suggest that there is sometimes far too much. It has not given great confidence to many of us in this country to see the Governor of the Bank of England spending so much of his time on the high seas and travelling on the Continent.

The position of Germany is much stronger than is generally understood in this country, and as it was originally put forward on the question of reparations, it was entirely misunderstood. I would call attention to this fact, which does not seem to have been in the minds of everyone, either here or in the United States, that the Young Plan and the Dawes Plan provided for a moratorium in reparations. Germany under either scheme, by adopting the regular procedure provided, could claim a moratorium. An investigation of the facts was provided for both under the Young scheme and under the Dawes scheme and if the facts were found to justify a moratorium, provision was made for a moratorium of six months or any longer period up to 2½ years subject to the consent of the Governments concerned. That procedure was not adopted. Washington made certain suggestions without inquiry and there have been negotiations which have inevitably and properly led to the response of the Government of this country to the effect that if the United States and other countries forewent payment of their debts for the period indicated, we, too, would cease for that period to collect the sums owing to us, both from other countries and from our Dominions, in respect of War payments.

Germany pushed her case very far and it has led to a Joss of confidence in the stability of Germany, not only abroad but in Germany itself. This loss of confidence in the stability of Germany was not foreseen by German statesmen when Germany was "playing the old soldier." The position has been greatly exaggerated. I have obtained official returns regarding trade in Germany. These returns, I may mention, are not to be obtained in London. They are not to be found in any of the usual places of reference here. It was necessary to go to Berlin in order to obtain copies of the necessary returns. I have secured these returns and have had them translated and I propose to compare the figures of Germany's trade with those which I have just given of British trade. I take the same period, namely, 1924 to 1929, and I find that the export of manufactured goods in Germany in that period increased from £281,700,000 to £481,300,000. Germany's exports nearly doubled in that period while the United Kingdom exports of manufactured goods decreased from £618.6 millions to £573.8 millions.


I presume that the right hon. and gallant Gentleman is going to relate this to the financial position of the country?


Yes, I am bringing it in at every stage. My object is to show that Germany's position is stronger and that ours is relatively weaker than is generally realised. I have here particulars by means of which all these matters can be examined in detail, but I do not propose to trouble the House with all the figures. We know that in Germany there has been a financial crisis. It is admitted. It is also admitted that she has overspent. Are we over-spending to a much greater extent? A comparative statement of the taxable revenue and expenditure of this country and of Germany, respectively, shows that in the year 1929 the gross income of Germany—she has a larger population than ours—was estimated at £3,500,000,000 against our own taxable income of £3,131,000,000. The net taxable income was £1,823,000,000 in the case of Germany and £1,301,000,000 in the United Kingdom, and when we come to the net amount of tax collected the figures become very startling indeed. In 1928 the amount collected in Germany was £155.5 millions and in this country £227 millions. With this great load of taxation—and it must be remembered that the taxation in this country is heavier both for Imperial charges and for local charges—how can we be expected to compete on equal terms with Germany? Germany has a population which is highly efficient and which is, if I may put it in that way, less liable to engage in trade disputes than the population of this country—more easygoing, working more regularly, with fewer interruptions and, on the whole, working longer hours at considerably less pay.


Will the right hon. and gallant Gentleman tell us the number of trade disputes which have taken place in this country since 1926?


That was a blow from which this country has not yet recovered.


The right hon. and gallant Gentleman is suggesting that industrial disputes are more rife here than in Germany. I am asking him what industrial disputes we have had in this country since 1926?


In what I said I took no date, I repeat that the events of 1926 dealt a shattering blow to this country and during the whole period since the War there has been nothing like that in Germany. In this country there was a long coal stoppage and then there was the General Strike, and a gap was made in production in this country which has never been bridged. Germany on the other hand is in an excellent condition, becaue the money which she has been borrowing from other countries has been largely spent in fitting out her works with the latest equipment. The other day in reference to the difficulty about carrying out the moratorium Germany was advised to look to herself. The first market on which the German nation will cast their eyes is the Free Trade market of Great Britain, the one market in the world which is open and easy of access. What are we to expect in these circumstances? We shall have coal and manufactured goods and everything of the kind poured into this country and there is no protection against it. [HON. MEMBERS: "Coal!"] Yes, coal! It may come to the dumping of coal and it has been definitely written in the German Press that in all probability we may have to face such a prospect.

It is no good closing our eyes to the facts. Hon. Members opposite seem to think that things nowadays are just as they were, but that is not the case. Hon. Members opposite seem to look upon capital as though there were an unlimited well from which they could draw all the money they want for any schemes which they can bring before Parliament. If they have not already found they will find—and in increasing degree—that that is not the case. Some of the supporters of the Government desire to strike blows against the capitalist system, and this Government has done a good deal to strike blows at the capitalist system, to shake confidence and to diminish the value of capital. But in thus seeking to shatter capitalism, they are at the same time restricting employment and diminishing our power to compete in the markets of the world and, as our capital becomes less employed, the numbers of the unemployed mount up and the charge upon the Treasury for unemployment benefit increases until it becomes a burden which no one knows how to deal with on the present scale.

Has anything been done towards meeting this situation of declining trade, increasing taxation and a mounting number of unemployed? I seem to recollect that not many months ago the President of the Board of Trade proposed a tariff truce which has proved a completely abortive scheme. Now we see from statements in the Press that some other scheme of a similar nature is suggested. But what has been done to deal with our iron and steel trade, for example, which is steadily declining? In the six months ending June this year the imports amounted to 1,272,300 tons, while the exports were only 999,418 tons.


I cannot help thinking that this is really a Tariff Reform speech, and is a speech of the kind which has been barred by Mr. Speaker in this Debate. I understand that what we are discussing is the financial position of the country at the moment, and whether we are spending too much or too little.

Brigadier - General Sir HENRY CROFT

May I ask if it is not competent in this Debate to discuss the position of the cotton industry or the woollen industry, and the various commissions and committees which the Government have set up, and the reports which they have failed to carry out, and the suggestions which they have failed to put into operation?


I understand that Mr. Speaker has already ruled that there are certain topics which we shall not discuss this afternoon and that this discussion is confined to the financial position of this country. We are debarred from discussing either taxation or tariffs on this occasion.


On a point of Order. I understood Mr. Speaker to rule out any discussion of taxation from the point of view of suggested reforms in our taxation, but that otherwise we could discuss the general situation of the country predominantly from the financial aspect. I confess that I did not understand that Mr. Speaker ruled out discussion on the condition of our industry, and my right hon. Friend who opened the discussion discussed very fully several points bearing on the state of our trade and industry.


I understood that Mr. Speaker stopped the Chancellor of the Exchequer—I was not present and therefore can only use my own judgment—and rule that this must not be a tariff discussion, although tariffs are not directly mentioned by the right hon. and gallant Gentleman.


The Chancellor of the Exchequer was embarking on a discussion on the question whether a tariff was paid by the consumer. That, of course, is not the kind of point that my right hon. and gallant Friend had in mind when he referred to the condition of the cotton industry.


I was not here when the Chancellor of the Exchequer was called to Order by Mr. Speaker, and as usual the two sides do not agree as to the Ruling that has been given. I have no objection to the right hon. and gallant Gentleman referring to the condition of any other country, but up to the moment I do not see that he is getting very near to the financial conditions of this country.


Is it in order for the right hon. and gallant Gentleman to discuss the affairs of another country in discussing the affairs of our own country?


I have called him to order for dealing with that for a good time without relating it to our own finance.


I would like to get this clear, because it is important to the rest of the Debate. I take it that it is in order to discuss the position of Germany in relation to the finance of this country?


Yes, but I thought that the right hon. and gallant Gentleman was discussing Germany without relating it to the finance of this country.


I was showing the decline in trade, and I was going to give some information as to the consumption of cotton bales in the world and the share of it in this country, and to point out the decline in cotton consumption, and therefore the decline in the sources from which we have to draw revenue. I think that I have made my point, however, and I do not want to press the matter at any greater length. I am not going to advocate any remedy, but will only point out that we are taking no remedy at all. We are told about the quota and about proposals to set up an import board. Such a remedy for a decline in trade and the consequent decline in revenue will be met with great difficulty and long delay, because if the Government attempts it, they will find that they will have to go into the matter of commercial treaties with foreign countries; notice will have to be given, and those treaties will have to be revised. We want remedies here and now.

We hear a great deal about the Government doing something with Russian trade. What is the position? During the 18 months from October, 1929, to March, 1931, we bought from Russia nearly £50,000,000 worth of goods of one kind and another, and we exported to Russia to the same period about £17,809,000. Therefore, the excess of imports from Russia into this country over exports into Russia from this country amounted to the value of some £32,091,000. The United States have no representation in Russia and no representation of Russia there, and yet they are doing a better trade. They sold to Russia in that time £38,500,000 worth of goods and they bought from Russia £6,733,000 worth. That is to say, there was an excess of exports by the United States to Russia to the value of £31,771,000. All that business has one very striking fact about it; an excess of £31,000,000 was paid by Russia to the United States and Great Britain paid an exces of £32,000,000 to Russia. We are financing the trade of the United States with Russia, and we are doing such trade as we do with Russia under Government guarantees. The whole position is absurd. The latest scheme is to make a contract with Russia for the sale of £6,000,000 worth of heavy metal goods, of which the Government is to guarantee approximately 60 per cent. at the risk of the taxpayer. The whole position is absolutely absurd. We are losing on these transactions, and the United States is making a very large profit at the expense of our exchange and our market.

We are now waiting for the report of the Economy Committee. So far, the Government have not acted on the inquiries they have set up. The unemployment insurance report was one with which they dare not deal. The pressure of their back benchers may reduce, rightly or wrongly—I am merely pointing out the cold hard fact—the economies which their own inquiry recommended, and which were estimated to reduce expenditure upon the unemployed by £30,000,000. They will reduce it by their amendments to the Government's Bill to one-tenth of the amount which the Government's own committee recommended. It is unfortunate that we have not to-day the report of the Economy Committee. We have to economise, and if this Government will not economise, another Government must be found to do it, or the country will be ruined. Everyone knows that the report is of a widespread character and will greatly embarrass the Government when they come to put it into operation. The Liberals are in the same position as the Government. They are keeping the Government in Office, and it is absurd to talk of two Oppositions. There is in fact one Opposition and a Coalition, and on every occasion when the Government propose expenditure, the Liberals support them against the criticism and the proposals for reducing expenditure which come from the official Opposition.

This kind of thing cannot go on. We are all agreed that it cannot go on, and the position is pressing upon us here and now. Many of us, whether in the House of Commons or in the City or in the country, will go on our holidays with much apprehension, for there is little comfort in the Government. No doubt they are now somewhat repentant when they see the effect on national finance of all their extravagances and their attempt to put Socialist doctrines and theories into practice. The Liberals, though their numbers are small, are divided on all controversial questions, and the only thing on which they seem to be united is their determination not to allow the Government to be turned out of office. In these conditions, where is the material for a national Government which has been urged? Where is the material to be found for a strong, united, decisive movement to reduce expenditure and to support our declining foreign trade? How many on the other side or on the Liberal benches will agree to turn from Europe and endeavour to find a solution of our difficulties in the Empire itself?

I think that I have shown the House that the position of this country is relatively worse in business and trade than many Members realise, and that the position of other countries has grown stronger while ours has grown relatively weaker. Nothing effective has been done. It is not too late. I believe that the country can be saved I believe that the nation is sound, and that if our resources and the natural energies of our people are rightly utilised, they will not be found wanting. The fault is here, among the politicians, more than in the nation. The nation desires to be led, and led in the direction in which it knows it ought to be led. The politicians dare not take the steps that are necessary. All democracies are extravagant. Turn back the pages of history, and you find democracies have always been extravagant. Many of the democracies of the past have passed away on account of extravagances with which they could not cope. When you add to the number of voters, you are adding to expectations, and politicians encourage expectations of what may be had from the State. You are not making it easier to economise when you increase the size of your electorate.

We have got to face these facts, and if they cannot be handled there is ruin, not only for the capitalists, not only for the Conservative party, but for those vast masses of our countrymen and women who listen—and many of them believe—that there is something to be gained by the destruction of the system under which our country has been built up and under which we have hitherto gone forward. We are now finding the pinch. The remedies are there. A great many of the hon. and right hon. Members opposite know where the remedy is to be found. We on this side know. The remedy is economy, and such measures as can be taken later; but I must not go further in that direction in this Debate. If we delay too long, there will be a still longer hill to pull up. Each month's delay makes the reforms and the changes more difficult. This Government cannot make them; they have not the courage, and they are not supported by their followers in doing that which is necessary; but there are others waiting to take their places and to do their best to save the country.


The right hon. and gallant Member for Burton (Colonel Gretton) has, I gather, linen occupying his time delving into the figures of at least one foreign country. I would recommend him to carry his researches a little further, and I would point out to him that he will find it much easier than he seems to think to find the statistics of German trade and finance, and the statistics of other countries, if he will search the admirable statistical bulletins issued by the League of Nations at Geneva. I know he dislikes that particular institution, but, at any rate, I am sure he will agree that the figures are reliable.


That is what I and my friends have consulted.


If he had done that, he would have discovered one most glaring and unfortunate omission from his statistical argument, which has vitiated nearly all his conclusions. He said the position of this country was getting worse, relatively, to that of other countries. He took the statistics of this and other countries up to the year 1929. If he had pursued his researches into 1930 and 1931 he would have found, in the quite exceptional and terrific disaster that has overcome world trade in the last 2½ years, that relatively this country had weathered the storm better than nearly all its rivals. He said this country is not producing and is consuming, and that other countries which are not cursed with a Socialist Government, as he would put it, are prosperous, and he urged us not to shake confidence in this magnificent capitalist system. At the present moment it seems to be shorn of a good deal of its magnificence. I would like to ask whether he supposes that the lack of confidence, engendered, if you like, by this Government and its supporters, here or elsewhere, is responsible for the slump in America, the very ark of the covenant of the capitalist system. During the years from 1928 to this year the monthly production in American industry has dropped proportionately very much more than the production in this country. He will find from official figures that American production now has dropped by 25 to 30 per cent. as compared with 1928. The production of this country, though it is reduced, is reduced less than that of America and of Germany and of most of the other important European countries, with the Single exception, I think, of France and, possibly, Sweden.

One of the most remarkable features of the present situation is that between 1928 and 1931 the production of most countries has dropped by about 20 to 30 per cent. on the average, and our production has dropped by only 10 per cent. It is quite true that our export trade has diminished, though not nearly as much as the export trade of America and most European countries—proportionately. The production of this country has maintained a stability which, having regard to the world situation, is very remarkable. It is quite clear—the bank returns, the clearings and the traffic on the railways show it—that what has happened is that our home market has suffered far less diminution in these last few months of crisis than the home trade of any other country. Our export trade has dropped because world markets have slumped. Our home trade seems to have remained, not quite but very nearly, constant. One reason for that is that by unemployment insurance and all the other devices which hon. Members opposite are so anxious to end we have maintained to a very large extent, so far as primary necessities are concerned, the purchasing power, low though it was and is, of our people. If the drastic economies which are now proposed were put into operation the effect would be to reduce our home trade to the disastrous position of our export trade, a circumstance which, I hope, will cause the Government and this House to hesitate a very long time.

Compare that situation with the position of Germany. There an entirely different phenomenon is observed. Germany's total production in those last three years has dropped by 30 per cent. or more, but, as the hon. and gallant Member has said, her export trade, in volume at any rate, has increased. Actually her exports in these months of 1931 have been 8 or 9 per cent. more in volume what they were in 1928, but her home market has completely collapsed, and the parlous position in which Germany finds herself, in spite of all the rather extraordinary propositions to which the right hon. and gallant Member committed himself, is due not to the destruction of her export trade, but to the collapse of her home trade.


Perhaps the hon. Gentleman will observe that I remarked that confidence in Germany herself has been shattered and shaken—confidence among her own people.


That may be, but what can you expect when wages are being cut down, and when every conceivable means is being devised to put into operation the sort of policy which hon. Members opposite are now beginning to press on this Government? How can you expect confidence to remain when you tell every worker that unless his wages are reduced by 25 per cent. or thereabouts the country will be ruined? Let us face up to this question of confidence. There is the confidence of the investing class, which, so far as this country is concerned and despite all that is said by hon. Members opposite, is not yet—and I think happily so—really reduced. There is very little evidence of money being abstracted from this country by British investors for investment abroad—there is no sign of it at all. There is no proof of it in the figures, and no evidence of it. There is confidence among the mass of the population.

In this country, rightly or wrongly, we have preserved a certain amount of confidence in the mass of the population that they and their children are not going to starve. We have left them with a very emaciated and not very luxurious or satisfactory life, but at any rate they have been saved, and believe themselves safe, from complete and irreparable disaster; and I believe that in facing the admittedly difficult situation in which we find ourselves it is very important that we should preserve the confidence of the people—the 80 per cent. of the people of this country, not the best people, but the working people, the best people as some might define them. It is more important that we should retain their confidence if we are to weather the storm which is breaking on us at this moment, not through the action of this Government or through the action that any Government in this House could have taken, but owing to world circumstances which are the product of the actions and activities of a great number of people, and which represent, broadly speaking, the collapse on a world scale of what is known as the capitalist system. Let us face up to the fact. The system of world trade as we knew it in the 19th century is in a state of collapse. It is adjusting itself to a new world, and whatever may be the outcome of this present crisis we shall never get back to the world as it was. Before I leave the points made by the hon. and gallant Member opposite, let me draw his attention to one other very significant fact which he could also discover from the League of Nations statistics. The only country in Europe whose production has increased or whose imports and exports have increased in these last three or four difficult years is Russia. He can explain it how he pleases.


They were very low to start with.

6.0 p.m.


Oh, no. In 1928, Russia was practically back to her pre-War industrial production, and agricultural pro- duction, too. In steel, in pig-iron, in the transport over the railways, in agricultural production, despite the collapse of the rest of the world, Russia has not only maintained her position but has steadily improved it. It is a point of very great importance. Russia has insulated herself very largely from the disasters which have befallen the capitalist organisations of the rest of the world and has weathered the storm. That is hardly true of any other Continental country. We cannot discuss the finance of the country as if it were solely a question of a penny here or two-pence there on this or that tax. It is plain that the Budget position, if present tendencies continue, will be a very serious one by March of next year. It is plain that the trade position of the country is in a very bad way. Several hon. Members opposite have alluded to this question, and they have told us that it is bad because the world trade position has collapsed. We cannot expect to put right our financial position until, by some means or other, the world situation changes. I was very much interested by the examples which were given by the right hon. Gentleman the Member for Edgbaston (Mr. Chamberlain) to illustrate his point a to the action taken by other countries, and he mentioned Germany. I want to deal with one other very important fact. Germany's growth in exports in the last few years is no natural or healthy growth, but it is one which has been forced upon her by insisting at all costs on meeting her liabilities in regard to Reparations and other liabilities incurred since the War, and the constant pressure of Reparations upon her. To meet these liabilities, Germany has increased her export trade at the expense of the standard of life of her own people, and she has done this deliberately. She has got rid of her goods abroad at a low price, and has looked to her home markets in order to cover the loss on her exports. That is the situation into which the reparation arrangements have driven Germany, and it has ended, as it was bound to end, in the collapse of Germany, and in the collapse of the whole system which she has adopted in order to meet her difficulties.

It is vital in these discussions, when we are dealing with this situation, to recognise frankly that no temporary moratorium in regard to our Reparations and War debts will get us out of our own difficulties; indeed the value of a temporary moratorium is beginning to evaporate in Germany, and you will get no re-establishment of trade in Germany on a proper co-operative basis with the rest of the world until the whole basis of Reparations and inter-Allied debts, which are pressing heavily on the peoples of the world, is wiped out. Let us be under no delusion on that point. It is clear now that American opinion, which has always been very touchy in connection with this question, has been forced by the difficulties in which America finds herself, to recognise these facts. Naturally, America is anxious not to alarm or scare or press too hardly American opinion. The salvation of Europe and of America, and the restoration of prosperity to trade, and the removal of the terror of famine, hunger and destruction and political disturbances which would shake the existing political system in Europe to its foundation, depend upon the people of countries like our own and America in particular recognising that the basis on which we are proceeding in regard to Reparations and War debts is pressing more and more on the people of the countries concerned, and can no longer be maintained.

Let us face the facts, and then proceed to consider the reorganisation of trade and international relations on the basis upon which they must be established. The German collapse was undoubtedly accentuated and hurried by the drop in the price of raw materials, and it was preceded by almost a collapse in Austria which would have affected most of the European countries, none of which are now paying any Reparations because they were released from that obligation 10 years ago. Austria's misfortunes are not due to Reparations; they are due to the breakdown of trade in Eastern and Central Europe, and to the fall in the value of the products which the agricultural countries produce. Rumania, Bulgaria, Hungary, Jugoslavia, Canada, and Australia can no longer buy the goods which the industrial countries produce, nor can they pay the interest on the national loans or on the mortgages on their businesses. That situation, accumulating in intensity as prices fall more and more and the world trade diminishes, has brought Austria to the edge of collapse, and it has precipitated the situation in which Germany finds herself now, because if those countries cannot buy, obviously the industrial countries cannot sell.

Even if we deal effectively and completely with Reparations and the debts problem now, as long as that situation continues, as long as there is no harmony and no relation between the prices of what the agricultural countries sell and what the industrial countries sell, we cannot expect to restore the world trade, to restore the export trade of this country, or to restore our finances to a better position. It is true, as the Chancellor of the Exchequer has stated, that the financial position of most other comparable countries is infinitely worse than our own. I think the immediate crisis is very much worse than hon. Members opposite seem to believe, or that public opinion has been informed by the Press or otherwise. It is unfortunate that we have not had a clear and considered statement by the Government in regard to what is the worst crisis of world commerce since 1914, and even if we get round that difficulty I do not believe that its effects will be felt for more than a few weeks, and we shall not get out of the rough waters until we deal drastically with the fundamental problem of the breakdown of the system of exchange between various countries which has been intensified by the collapse in prices.

Proposals have been made, rather tentatively, to meet this position in the report of the Macmillan Committee, and I think it is vital that we should begin to examine fundamentally the basis of the financial and currency system under which this country lives, and under which the trade of the world is carried on. To talk about cutting down by 10 per cent. the salaries of civil servants, economising on national insurance, and doing the things which the Economy Committee seemed to contemplate, will not cure the problem, but will make the immediate problems before us still worse by destroying the home market, and that will bring about a state of things worse than that which exists at the present time.

We have to face up to a reconstruction of the whole basis of world trade. We have to recognise that the system of trade and exchange, as we knew it in pre-War days, with all its embarrassments and difficulties, is about to collapse. This country should take the leadership in guiding the world on to a different system. We want a system based on a real recognition of the fact that no longer will the peoples of the world consent to have their livelihoods and destinies placed at the mercy of irresponsible bankers, however public-spirited, however competent within their narrow way, but entirely outside public control.

With regard to the immediate proposal which the right hon. Gentleman the Member for Edgbaston put forward in relation to economies, it is not easy to discuss that question in the absence of the report of the committee, but I would like "to say that I believe that the right hon. Gentleman was proceeding along a line which would do more harm than good. His proposal would be fundamentally unjust, and it would be appalling if the Labour Government proceeded to take part in a campaign for the reduction of wages and allowances—I do not believe they will—without dealing in advance with what is the biggest burden on the revenue and the least defensible, the cost of interest on inflated War Debt and its effects. As far as we on these benches are concerned—I am not speaking simply for myself, but for many other Members on this side of the House—we shall view any such proposal as that with very careful scrutiny and suspicion, and if our anticipations are right, the Government can rely on as strong an opposition from these benches to any attempt to make our situation worse as we put up to the Anomalies Bill a week or two ago.


Few people who might have had an opportunity of attending Debates in this House during the past few weeks would have supposed that we were passing through one of the greatest economic crises in our history; and I should imagine that few people who attended the Debate at this moment, and looked at the condition of the benches on both sides of the House, would imagine that at last we had an opportunity of getting to grips with some of the economic facts that really matter at the present time. Among these facts I cannot include such ques- tions as electoral reform and the taxation, or rather, the hypothetical taxation, of land values two years hence, upon which the Government have been wasting so many hours, days and weeks during the past three months. For that waste of time the Government, and the Government only, are responsible; and, by taking this course of action, and inviting us to consider masses of legislation wholly irrelevant to the one economic problem that matters, they have brought the House of Commons into some discredit as well as themselves.

The hon. Member for East Leicester (Mr. Wise) invited the House several times to face the facts. I think that everyone who has spoken in this Debate has made a real attempt to face the facts, and I want to try and face one or two of them myself. Take, first of all, the budgetary position. It is unnecessary to go into it in any detail, after the speech of the right hon. Gentleman who opened the Debate; but, having sat for nearly three years behind the right hon. Gentleman the Member for Epping (Mr. Churchill) when he was Chancellor of the Exchequer, and having listened to the endless reproaches and castigations which he received at the hands of the present Chancellor of the Exchequer, I cannot help being slightly amused at the great change in tone and attitude which the right hon. Gentleman adopted in his speech to-day. The Chancellor of the Exchequer enjoys the reputation of being a man of principle, and of rigid intellectual integrity. He has been widely described as the Iron Chancellor. I must confess that I have always regarded such people with considerable misgiving and apprehension. The man who makes no pretensions to higher public rectitude than his fellows can usually be trusted to do his best in the practical affairs in which he is engaged from day to day; but these men of rigid principle, when they do crash, crash so far, and go so far from the path of rectitude, that it is much more embarrassing than when you get a few small deflections from what may be regarded as strict orthodoxy in order to meet a temporary emergency; and no one can say that the right hon. Gentleman the Member for Epping was ever at any stage guilty of more than that.

The Chancellor of the Exchequer is handling the national finances, whatever he may say, in a way that the right hon. Gentleman the Member for Epping would certainly never have dared to do; and, although the right hon. Gentleman rightly appeals to us to take a patriotic view, and say nothing in the House this afternoon that would endanger the credit of this country abroad, nobody can deny that the national balance sheet for which the present Chancellor of the Exchequer is responsible is, on the face of it, a dishonest balance sheet. It is not a balance sheet that any company at the present time would dare to issue. As was pointed out by the right hon. Gentleman who opened this Debate, to balance the estimated deficit for this year the Chancellor of the Exchequer had recourse to those very expedients which he himself described in 1927 as "jugglery and deceit." Of £37,000,000 of non-recurring revenue, he has raised £20,000,000 from the Exchange Fund, £10,000,000 by a forestalling of Income Tax, and another few millions from the Rating Suspense Account, in order to meet recurring liabilities. No one can say that that is, on the face of it, honest finance. Over and above that, the right hon. Gentleman, despite what he told us this afternoon, is borrowing £50,000,000 a year in order to meet current liabilities; and sooner or later that situation will have to be faced.

The right hon. Gentleman attempted to defend himself in his speech this afternoon, but I should like to ask him, how does he contemplate dealing with the debt of the Unemployment Insurance Fund, which at the end of this year will amount to over £100,000,000? Does he seriously believe what he tried to make out this afternoon, namely, that the fund itself will be able to discharge the debt? Of course he knows, as everyone knows, that ultimately the liability for the repayment of that debt will fall upon the national Exchequer. I want also to know how he proposes to deal generally with the deficit which he has admitted to us this afternoon he anticipates next year. He himself has increased unproductive expenditure by something like £60,000,000 a year. I do not see that any useful purpose is to be served by blinking these facts. The hon. Member for East Leicester said, let us face up to them, and I say, let us face up to them. The right hon. Gentleman told us this afternoon that his estimate with regard to revenue from Stamp Duties was based upon a renewal of Stock Exchange activity, but he knows that there has not been the slightest sign of a renewal of such activity, nor is there any reason to suppose that there will be during the remainder of this financial year. He is going to be faced with a very serious deficit next year, and I think we are entitled to ask him what steps he proposes to take, and how he imagines he is going to deal with the situation.

The right hon. Gentleman has admitted by action far stronger than words that, in his opinion at any rate, if not in the opinion of the hon. Member for East Leicester, the limits of direct taxation in this country have been reached. We must ask him, therefore, does he expect to balance his budget, which he said he proposed to do, next year, by economies to the tune of about £100,000,000 a year? He has not made a very good start. We do not know what may be in the report of the Economy Committee, but there are two lines along which substantial economies might have been effected by the right hon. Gentleman. One was by the reform of the system of Unemployment Insurance, but he has not adopted that line, and the Government have not adopted it, in spite of the recommendations of the Royal Commission. The other is by what the Chancellor of the Exchequer himself referred to in his speech this afternoon, namely, a conversion operation on a very large scale. The right hon. Gentleman now invites the pity and sympathy of this House because, he says, the European financial crisis has prevented him so far from carrying through the great conversion scheme which he had prepared. We are entitled equally to remind him that the technical conditions, as the right hon. Gentleman knows, and as the Financial Secretary knows, were never more favourable for a large conversion operation than they were about 15 months ago, at the time when the right hon. Gentleman introduced the Budget before last.

Why did he miss his opportunity then? He missed his opportunity because he imposed another 6d. on the Income Tax, and that had such a disastrous effect upon the money market that for the time being it made a conversion scheme out of the question, although the technical conditions were never more favourable. Therefore, we have a right to be alarmed, because, whatever the Economy Committee may say, the Chancellor of the Exchequer has missed at least two great opportunities of achieving large economies of a kind that matter; because I agree with the hon. Member for East Leicester that the mere cutting down of wages in a few Government Departments is not going to have any vital effect upon the economic condition of this country one way or the other. We ought to be on a 4 per cent. basis, but to-day we are on a 5 per cent. basis. For that, we on this side blame the Chancellor of the Exchequer; and the Government are primarily responsible, owing to the lack of confidence which they have engendered having rendered conversion operations unfeasible. It is very ironical when we hear so many denunciations of the "rentier" from hon. Gentlemen opposite, to reflect that their Government is responsible for paying the "rentier" 5 per cent. instead of 4 per cent. The Chancellor of the Exchequer has increased the burden of direct taxation by anything from £40,000,000 to £60,000,000 since he came into office, and he has increased expenditure for unproductive purposes by a similar amount. The rate of direct taxation is seven times what it was before the War. Whatever the hon. Member for East Leicester or any other hon. Member may say, we on this side of the House maintain that that is a burden which in the present condition of world trade, no industry in any country in the world could possible stand.

The Chancellor of the Exchequer said that there were two remedies, and two only, for the present budgetary position. The first was real economy. I wish we could feel certain that he really meant to carry it through. The second was increased taxation. I am precluded by your Ruling, Mr. Speaker, from developing an argument in favour of the only method that is possible at present of increasing taxation, namely, a revenue tariff. I agree that there are no other means. We are now in such a serious financial position that we have to adopt both the method of economy and the method of increased taxation in order to balance our Budget, which is the first necessity; but I do not see the Chancellor of the Exchequer, unless he changes his tactics and methods very strikingly, achieving either the one or the other. For the first, he needs the support of the party behind him, and that support he has not got. And for the adoption of a revenue tariff, very different fiscal views are necessary from those of the right hon. Gentleman.

I now come to another question upon which the hon. Member for East Leicester briefly touched, namely, the question of the monetary policy which has been pursued in this country for some time past. It is obvious that neither the Chancellor of the Exchequer nor any right hon. Gentleman in a position of responsibility upon the Opposition Front Bench is in a position to go into a question of this very delicate character, because anything they said might affect our credit in the world outside this country in a damaging manner; but it seems to me that this is a subject that ought to be ventilated by private Members. What is the phenomenon with which we are confronted at the present time? It is, surely, a very strange one. Millions of people all over the world are insufficiently supplied with the necessaries of life; and, at the same time, there is an unprecedented volume of world production and capacity for increasing production; and, on the top of that, there is world-wide unemployment. It is really an extraordinary situation; and, in my opinion, the theory of over-production, except in the case of certain basic industries, is not really a sufficiently good or valid explanation. It seems to me that there is something wrong with the system of exchange; and I think that sooner or later we in this country will have to face up to this question.

Some of us for several years past have ventured to express in this House doubts as to the wisdom of the monetary and financial policy pursued in this country ever since the War. By no one have we been treated with more lofty disdain than by the present Chancellor of the Exchequer, who once described the Bank of England, in a moment of exuberance at a luncheon in the City, as the greatest moral force on earth. I am not prepared to admit that the monetary policy that has been carried out by the Bank has at all periods necessarily been right. As any rate, we are entitled to ask what are the results of the monetary policy which has been pursued by this country for the last 10 years. Wholesale commodity prices have dropped from an index figure of 166 to one of 137 since 1924; and, of course, there was a sharp drop before that, after the slump of 1920. Agriculture is down and out in this country at the moment. It is no good blinking that fact. Cereal farming is in a desperate position. All over the country land is going down to grass, and people are leaving the countryside in order to swell the volume of unemployment in the towns; and I, for one, submit to the House that no country will ever be prosperous unless it has as its foundation a prosperous agricultural industry. If you look back over the economic history of the last century, you will find that, whenever there has been a credit stringency, whenever there has been a fall in commodity prices, there has always been agricultural depression; and whenever there has been a period of monetary expansion, usually following the discovery of fresh gold, there has always been a revival of prosperity in the countryside. Not only that, but our exporting industries are practically crippled, as hon. Members on both sides of the House know very well; and, measured in terms of commodities, the National Debt has been increased by over £1,500,000,000, whatever the Chancellor of the Exchequer may say.

The right hon. Gentleman said this afternoon in answer to a question that it was impossible to give an exact calculation of the increase in the real weight of the National Debt due to the policy of deflation. I agree that it is impossible to give an exact calculation, but you can give an approximate calculation, which he refused to do. We can say, and it has been confirmed by some of the most eminent economists, that the real weight of the National Debt, as the result of our monetary policy, has been increased by approximately £1,500,000,000, representing an average annual additional burden of between £50,000,000 and £100,000,000. In addition, as a result of this policy, the real burden of all debenture and fixed interest charges has been increased in proportion. Every debtor all over the world, national, or private individual citizen has been made poorer; and the burden upon him has been increased. Sir Josiah Stamp in a recent article summed up the situation when he said: The present uncontrolled international monetary system has tacitly assumed its power to provide sufficient stability to obviate injustice and economic disaster and has failed signally to provide it. A variation of such a kind as we have had in the price level cuts at the very root of every contractual obligation. One could go on arguing about it for hours, because there are endless aspects of the question. But the fundamental point is that if you get a stable price level, once you get your costs and your wages adjusted to it, it is possible for agriculturists and producers and manufacturers to make a profit; but the one thing that makes it absolutely impossible for any producer to make a profit is if he has to work against falling commodity prices. If he gets a "table price, it does not matter if it is low, but a falling price level is fatal. We have had a falling price level to compete against for 10 years, and that is at the root of our economic trouble. What was the object of this financial policy? It was to establish and maintain what is called the financial supremacy of the City of London. Where is that supremacy to-day? During the last few days the bankers of London have been making a veritable procession to Paris, begging for favours from the French Government and French financiers, which they have been most unwilling to accord. The real truth of the matter is that you cannot build up any sort of financial supremacy upon a foundation of agricultural and industrial bankruptcy; and we have to set about restoring our agricultural and industrial supremacy as the first objective. It has been worked out that the annual increase of production all over the world is about 3 per cent. The annual increase in the amount of gold that can be made available for monetary purposes is not more than 2 per cent. If that is the case, failing international co-operation and the stabilisation of the value of gold in terms of commodities, we are bound to be faced by a further fall in commodity prices.

What is the immediate practical remedy? I do not want to advance this in any dogmatic spirit, but it is a ques- tion which deserves most careful consideration on the part of the Government and financial authorities. The immediate practical remedy, in my opinion, is the remonetisation of silver in some form or other. I do not see anything else that can alleviate the present situation. In 1920, the value of silver was 7s. 6d. an ounce. To-day it is 1s. 1d. an ounce. I wonder by how much that has reduced the purchasing power of the 1,000,000,000 people who live in India and China. I wonder what the effect of it has been upon the export trade of the country and the general trade of the world. By debasing the currency of the East, I believe we have dealt a very serious blow, at a difficult time, at the standard of life of the West. There are labourers in China who, as a result of the debasing of the value of silver, are getting wages of not more than £1 a month. Supposing you get a great industrial development in China or India, especially if you hold the Free Trade theories of hon. Members opposite, how on earth are we to stand up against an economic assault of that kind? It is going to be absolutely impossible. The Chancellor of the Exchequer may say that, if we adopt such a policy in order to give silver a monetary value, we shall in effect be coming off the gold standard. My answer is that it would be better to take a step of that kind than to be forced off the gold standard in a state of economic collapse, which seems to be the only alternative that confronts us. We hear much about international co-operation. The present Government used to be keen on it at one time. They sent the President of the Board of Trade to Geneva to conduct a whole series of futile and abortive conferences with regard to a reduction in European tariffs; and the Minister for Mines followed him, and also conducted some equally abortive conferences with regard to the coal-mining industry.

The one international conference that might have been of real value the Government has never touched at all. The Genoa resolutions, which were passed as long ago as 1922, recommended an early international financial conference to see whether it would be possible to stabilise the value of gold in terms of commodities and to economise its use. That conference has never yet been held. No international conference has ever been held to consider the one matter which is of vital international importance, and concerning which such a conference might be of real use. On many occasions, when some of us have asked the Chancellor questions about it, he has always turned it down, and refused to give us any satisfaction, or indeed any reply at all. Why does not the Chancellor summon an international conference to consider this vital question of the stabilisation of world commodity prices, the most urgent economic necessity of our time? Why does he not ask the American Government to consider the question of the remonetisation of silver? Would they refuse to consider it? I doubt it. But if they did, even if international co-operation were to break down, why should not this country proceed to consider the whole question from an Imperial point of view? Is it impossible to get the co-operation of the Dominions in the establishment of a system of Imperial currency, in which silver shall play its part, designed to maintain commodity prices within the British Empire, and, if the rest of the world refuses to co-operate, endeavour to maintain within the British Empire a standard of life higher than the rest of the world enjoys? I believe that could be done.

The disheartening thing is that the Government are apparently content to let everything drift, and to take no action either of an international or an Imperial kind to deal with the situation. We are living in a world, whatever the Government may say, which is predominantly nationalist, especially from an economic point of view; and in my opinion we must adopt a predominantly nationalist and Imperialist policy. I believe that the economic policy we have been attempting to pursue has broken down. And certainly the nationalist economic policy pursued by France has not been wholly unsuccessful. As a matter of fact, until we play our own hand, and fight for our own interests, I do not believe we shall ever get world economic co-operation; because the rest of the nations of the world will be content to go on taking advantage of us and enriching themselves, as they are now doing, at our expense.

This brings me to the last point that I want to bring before the House, namely, the relationship between foreign and home investments. Before the War, it is estimated that we exported about £7,000,000,000 worth of capital, representing the surplus wealth produced by our people. The late Financial Secretary to the Treasury has estimated that of that amount we lost altogether about £3,000,000,000. We gained much, but we lost £3,000,000,000. To-day the conditions are much less favourable for overseas investments. Our own industries are, by general assent and admission, starved of the capital which they require more than they have ever done for re-equipment in order to compete with the industries of other countries; and yet we continue to lead abroad upon a gigantic scale. Germans, Greeks, Austrians, Hungarians and Poles have only to come to us and they will get loans of different sorts and kinds. Do they benefit so very much? Take, for example, the case of Australia. I suppose no country, in proportion to its size and population, has borrowed so much during the last 50 years as Australia. She has enormous debt obligations, amounting to about £1,000,000,000. Owing to deflation and to falling commodity prices, it requires twice as much human effort to pay the interest on that debt to-day as it did in 1924. That is one of the reasons why Australia is flinching at present; because the burden of her external debt is hanging round her neck, and that burden has been doubled in the last few years.

The French, on the other hand, during the last few years, have kept their money at home and borrowed from no one with successful results. We have borrowed short from them. They only lend us their money short, and they know London is a safe market. We have then lent to Germany long, at high rates of interest. The result is that municipal swimming baths have sprung up all over Germany. Is that good for Germany? What has been the effect on Germany, and on us, of this policy? We have seen something of it during the past few days And it was a French economist who wrote recently that the large foreign credits granted in 1928–29 by Great Britain had led to continuous sales of sterling by borrowing countries, and were therefore, mainly responsible for the gold exports which have caused such anxiety to our financial authorities. I only throw this out as a suggestion, but I do think the relationship between our investments overseas and our investments inside this country deserves to be very carefully considered by the authorities, not only of the Government, but also of the City. I believe we ought to endeavour, especially in the light of French experience, to deflect the flow of our surplus wealth available for investment as much as we can to home industry, to agriculture, to the re-equipment or our own industries; and a little less to the establishment of municipal baths in Germany, which do not necessarily benefit Germany in the long run, and certainly do not benefit us. Until you get a Government that will give our industries that protection without which they cannot function, you will not be able succesfully to do this. But it is a question that requires very serious consideration at present. It is not so much the creation of new debts and the lending of fresh credits of which the world stands in need; but the remission of existing debts which is an urgent matter; and that is the question upon which the Government ought to concentrate.

I have tried to direct attention to what I believe to be three vital aspects of the world economic problem, first of all, the budgetary position, which I believe to be dangerous and which, as it stands at present, calls in question the whole economic stability of this island; secondly, the monetary policy which has been pursued by this country during the last 10 years, and which I believe to have been, in the long run, calamitous; and thirdly, the policy of overseas investment, which I believe warrants the very closest reexamination by the authorities. These are questions which have to be faced whether we like it or not. We have drifted along too long. What depresses me so much about the Chancellor of the Exchequer is when he goes on saying that unless there is a revival of world trade, or an improvement in the general position, he is afraid that this or that will happen. It never occurs to him, or to the Government, to do something themselves. If you are on the bridge of a ship which runs into a very severe storm, you batten down the hatches; but the officers do not go down to the cabin and get out a gin bottle and pray for the storm to come to an end. They do something about handling the ship, and negotiating the storm.

The Government have not shown the slightest inclination to take a grip of the situation. They seem to think that it is quite impossible that this country or this Empire should do anything on its own in order to try to get out of the difficulties we are in at the present time. Tacitly they accept the explanation of the world crisis as the cause of our troubles; and they make it plain to this House, and to the country, that in their opinion we ourselves cannot do anything to try to get out of the present position. They think that mysterious world forces over which they have no control, and cannot exercise any control, are solely responsible for our predicament. I do not believe it. I believe that we can do a great deal to help ourselves in this crisis, because it is a crisis. I believe that if we could get a Government that was not afraid to tackle the vital questions which affect us, and not afraid to govern, we should get through in a surprisingly short space of time. I only hope that that Government will not come too late.


The hon. Member for East Aberdeen (Mr. Boothby) has delivered a very thoughtful speech, and has directed the attention of the House to some of the fundamental questions which affect Great Britain. His first point dealt with the monetary policy of this country, and on that, I presume, he criticised Great Britain for returning to the gold standard a few years ago. The return of this country to the gold standard not only maintained British credit abroad, but it enabled our country to buy more cheaply everything we required from foreign countries. We were enabled to buy the cotton we required at a lower price than formerly, and our workpeople were enabled to buy the food they required from other countries more cheaply because we faced a return to the gold standard. It is far more important that this country should buy cheaply from abroad, for by buying cheaply from abroad we are able to sell goods more cheaply in return.

The hon. Member questioned the fall in prices. I am one who thinks that a fall in prices is of great advantage to this country. I know that that view is disputed in many countries and in many parts of this House. A fall in prices denotes plenty, and I think that plenty is better than scarcity. I do not deny for one moment the hardship which a fall in prices brings to all those who have commodities to sell. No one desires to question that fact. But for many years, from 1914 to 1920, while every individual who owned commodities slept, those commodities rose in price. It was a very great advantage to all those who owned commodities during that time. When we speak of the sudden fall in prices, it is really a return to the pre-War prices, and in some cases it means lower prices. Although it is painful for this country to adjust prices to the new conditions we, in my opinion, dependent as we are upon selling our goods to enable us to buy the goods and food we require, find that low prices are of greater value to this country than they are to any other country in the world. The hon. Member referred to the question as to whether we should lend abroad as freely as we did in bygone years. There, also, I differ from him. At the same time that we lend abroad we are able to buy the raw material and the food which we require, and if we are enabled to lend capital abroad we are enabled to buy foodstuffs, and raw materials for our industries.

I have risen to make one or two short references to the speech delivered earlier in the afternoon by the Chancellor of the Exchequer. I am sure that we all welcome his fixed determination to maintain British credit, and the right hon. Gentleman the Member for Edgbaston (Mr. Chamberlain) also struck that note. The maintenance of British credit is essential to every wage-earner in this country. The Chancellor informed the House of Commons how he proposed to maintain British credit. I will touch on one side of that speech, the necessity of reducing expenditure. He stated to the House that economy in practice was never popular, and that the Government, when the House reassembled, would submit their proposals based upon the recommendations of the Committee under the chairmanship of Sir George May. If I understood him aright, a minority Government could not take responsibility for accepting all those recommendations. What those recommendations are we shall know to-morrow.

During recent months it has appealed to me very strongly that to enable this country to maintain her credit in the way we all desire we shall have to look afresh at our expenditure and the commitments embodied in the Consolidated Fund Bill. Whether a party Government can tackle that matter successfully is open to question. We have the case of Australia to-day where their exchange has broken down, where unemployment is rampant and trade is bad. All parties there have felt it necessary to come together to save the credit of Australia. You have the same thing in America, where President Hoover before he made his speech delaying payment of War debts for one year called into his council representatives of the Senate and his political opponents. We have the same sort of thing happening to-day in Germany where party Government has broken down.

If the situation develops, as it may well develop, we may be faced with the necessity of a national Government composed from each party in the State. I speak, naturally, for myself, and myself only, when I say that I would welcome the formation of such a Government if by so doing it enabled our country to raise still higher the credit which we need. We have for the last 13 years pursued a policy which has brought our expenditure and our taxation higher than those of any country in the world. The Chancellor of the Exchequer this afternoon told the House of Commons that his Budget position compared favourably with that of America and other countries, but he omitted to state at the same time that this country is more heavily taxed than any other nation in the world. The policy adopted quite definitely by all parties in this country during the last 13 years, ever since the Armistice, has been to endeavour to solve our economic and social problems by the outpouring of public money. Whether it be social services, our roads, housing, or anything which interests this House, the one solution which has been adopted by all Governments has been to pour out public money to solve this or that particular question. We have had this going on for 13 years, and what is the result?

I suggest that one reason for 2,500,000 people being out of work to-day is that all parties in this House have spent larger sums of national money than the nation could afford. I know that it is difficult to draw in in any quarter, but this large outpouring of public money has made capital scarce. The hon. Member for East Aberdeen referred to that matter. Even the Chancellor of the Exchequer told us this afternoon that he had hopes at one time, no doubt during recent months, of some large conversion loan, but that the international situation and the Money Market had caused him to delay endeavouring to convert the War Stock and other stock. This large outpouring of public money has made capital scarce and, therefore, made the rates of interest high. Our manufacturers to-day, through this policy, are having to pay much larger sums than the manufacturers in France and America, and by so doing unemployment is created. My appeal, therefore, is that if the Government find it necessary during the course of the coming months to invite the co-operation of all parties to cut down expenditure in this direction or that direction, I, for one, will support them in every effort they may make to maintain the credit of Great Britain.


If time allowed I should be very much tempted to follow some of the economic arguments with which the hon. Member for Greenock (Sir G. Collins) began his speech. I should feel disposed to say that a deflation which reduces the price of raw material and foodstuffs in terms of our currency does not necessarily reduce their price in the terms of the goods and services with which we have to pay for them. I might also say that a great fall in wholesale prices is of little help to a manufacturing and exporting country unless it is also accompanied by a corresponding fall in the overhead charges of the nation and in the wages of its citizens. The last of those contingencies, at any rate, is not one which we should desire to advocate or encourage. Let me turn from the speech of the hon. Member to that of the Chancellor of the Exchequer. It was a very curious and interesting speech, a great part of which might be summed up in the one word "peccavi"—I confess I have been wrong. Six or seven times in succession the Chancellor of the Exchequer used the words "confess" and "confusion" with regard to errors in his calculations. But on an occasion like this, like my right hon. Friend who opened this Debate, we are not out to make party scores, but rather to see what we can contribute to the common cause in a very grave emergency. From that point of view, the part of the speech of the Chancellor of the Exchequer which is of most interest and which we most welcomed was the very definite and explicit assurances which he gave to the House of his conviction that it is absolutely essential that we should have a balanced Budget, and the announcement of his determination that he would make every possible effort to make next year's Budget balance, however disagreeable the consequences of that necessity might be.

7.0 p.m.

We also welcome his statement that the Government will take the report of the Economy Committee into most serious consideration and come back with their proposals to this House. It is true that he added that no Government without a clear majority of its own could put forward far-reaching, drastic and unpopular proposals for the reduction of expenditure, and suggested that the responsibility must in large measure lie with the House itself. Certainly, the responsibility is for the House, if the Government take the responsibility of producing their proposals, and, as far as our part of that responsibility is concerned, we on this side will not be found wanting. I hope it is not introducing in any sense a partisan note into these discussions to suggest that we cannot be always too sure of the hopes that are held out. More than once before we have found the Chancellor of the Exchequer a watchdog who only growls after the burglars have left the house. We cannot help remembering that the critical three months, during which the Government have to make up their mind on policies which are going to affect the whole existence of this country, are also a period in which they are going to meet their own supporters in party conferences, and we may well have some mis- givings as to what the tone of the Chancellor of the Exchequer will be when they come back from those discussions. We fear we may well quote against him the words of the Latin poet, video meliora proboque, deteriora sequor—" I really agree with Chamberlain, but I shall reluctantly vote with Lansbury."

I agree with the hon. Member for Greenock that the problem with which we are faced is a problem which, while it may have been seriously aggravated by the present Government, is not entirely their creation. This problem is one which has been growing, not only for the last 13 years, to which the right hon. Gentleman referred, but for something like two generations. We are carrying on a financial system, which, in the great days of the financiers of the mid-Victorian period and of Chancellors of the Exchequer like Gladstone, was based on the principle of taxation for revenue only.


We cannot discuss taxation on this Bill.


I shall not discuss the merits of their taxation. I shall only say that the principle on which their taxation was based, that of not interfering one way or another with conditions of trade, was in its turn based on a great fundamental assumption as to the total expenditure. It was based on the assumption that expenditure was so low that it could not produce damaging incidental effects on the industrial structure of the nation. Those were the days of "peace, retrenchment, and no social reform"—at any rate, no social reform in the sense in which that word is used now. Those were the days—I take the period in the middle of the sixties—when the total Budget of this country varied between £60,000,000 and £70,000,000. Even as late as 1891 Lord Randolph Churchill resigned sooner than make himself responsible for a Budget of £91,000,000. By the time the Great War opened the Budget of this country had practically reached £200,000,000. If you take the total burden of expenditure, the tax burden in the Budget and the burden in local rates and social insurances, it had reached over £250,000,000 at the outbreak of war. Then came the Great War. By 1920–21 that figure had risen from £250,000,000 to over £1,300,000,000. However, in considering that figure, we must not overlook the fact that, owing to the immense increase in wholesale prices, that Budget was not five times the burden of the Budget of 1913–14 but, in fact, only some 70 per cent. higher.

The really serious situation, with which we are confronted, is not the addition to our burdens caused by the late War, but the addition imposed since the War. For that two causes have been responsible, the policy of deflation consistently followed by a series of Governments and the pathetic belief, as the hon. Member truly said, that we can solve all our social and economic problems not by going to the root of the question of production but by the expenditure of public money. On that many of us on both sides of the House are agreed—even though our solutions may be different—that the mere expenditure of public money is not a solution of the fundamental difficulties. What have been the result of those two policies in conjunction? By 1924–25 our Budget expenditure had nominally gone down by some £400,000,000, but in fact it was 30 per cent. heavier than the Budget expenditure in this country in 1920–21. Since then to our own policy of deflation has been super-added the immense breakdown of world prices in the last two years. With the £60,000,000 or £70,000,000 of expenditure which the present Government have piled on, we have a total burden to the nation, in one way and another in rates, taxes, and insurance levies, of over £1,000,000,000, a burden two and a-half times as great as the burden which this country was carrying at the end of the Great War, four times as great as the burden we were carrying when the War began.

It is impossible to consider that a burden of that character cannot have an effect on the cost of production and, therefore, on the whole industrial life of the nation. It has an effect which must obviously arise in two directions. One direction is that to which my right hon. Friend referred in his opening speech, the effect of that burden of taxation in withdrawing from industry the capital required to sustain employment. The calculations to which he referred show that in the last 12 years over £1,600,000,000 has been withdrawn by taxation from industrial capital. On the assumption that it takes some £500 of capital to employ a man, that means that, other things being equal, there would be 3,360,000 places less. If we have only unemployed to the extent of 2,600,000, that suggests that other sources of energy and recuperation have helped to make good the gap in the national capital created by over-taxation. The other direction in which taxation must have its effect on industrial production is the inevitable fact that taxation gets passed on. It was assumed once upon a time that our taxation was of a type which did not get carried on. Income Tax was levied on profits, and therefore only paid after profits were earned, and so, it was argued, it did not affect the cost of production. Our consumption taxes were optional, it was said, and, as wages were fixed by the subsistence level, only the workman who could afford it could indulge in beer, tobacco, and other luxuries. All that has been changed both by the volume of taxation and by the different attitude and conditions of our industrial life. To-day it is not subsistence but standard of living which occupies the whole outlook of the working-classes of this country.


It is more civilised.


I agree it is more civilised. It is an outlook which has behind it the tremendous organising power of the trade union movement, though even they cannot fight irresistible world forces without the support of Parliament and of the Government of this country. The standard of living does not apply to the working-classes only. The shopkeeper, the professional man, right through the whole scale the national tendency is to try and maintain the same conditions, and, if you have to pay more, whether in rates or taxes, to pass it on in the cost of the goods you sell or of the services you render. To say that, as a matter of theory, the rate is a tax which is passed on because it is levied irrespective of profits and that Income Tax is not passed on because it is only levied after you have made profits, is an argument which does not correspond with the real situation in industry to-day. From those causes, the cumulative action of rates, taxes and insurance levies, passed on by workmen into the wages which they naturally demand, passed on through those wages into the cost of every article produced and every article used for production including the cost of the construction of the factory, all these things must enter into the cost of production and constitute, in fact, to-day a very heavy veiled excise on British production, which was never contemplated when our present fiscal system was inaugurated. It is not my purpose to-night to suggest legislation altering the system and levelling our taxation as between goods brought into the country and goods produced in the country. For my purpose, it is sufficient to deal with the consequence of a situation in which the whole volume of our taxation creates a veiled excise upon British production, which is not balanced—


That is a subtle way of getting round it. We must not discuss the question of taxation on the Appropriation Bill.


I thought I was at any rate in order, in dealing with the broad effects of our expenditure, to show how it involved a burden on production. Certainly I have no intention of transgressing your Ruling or of going further than to point to the vicious circle of increasingly higher expenditure involved by the methods by which we are endeavouring at present to remedy the situation thus created. That brings me to the immense increase in expenditure on what is broadly called social reform in this country. I should like to draw a distinction between two types of social reform. There is that type of social reform which is concerned with doing things for the community which cannot be equally well done by the individuals themselves. I think that, without distinction of party, we believe in this House that a system of education—universal, compulsory, free—is a thing of value to the nation and repays itself. I think we believe that expenditure on a health policy—and no one believes it more than my right hon. Friend the Member for Edgbaston (Mr. Chamberlain) at my side—which can resolutely stamp out the scourges of infantile mortality, tuberculosis, and venereal disease is expenditure of a developmental character, and I do not think that anyone wishes to reduce development in these directions.

On the other hand, we are dealing also with a very large field, and the most expensive field in recent years, of what is called social reform but is largely remedial or eleemosynary reform, aimed at coping with the results of poverty and unemployment. I am convinced—and surely the experience of the last few years has proved it—that that is not the way to deal with that particular problem. The right method is not to deal with poverty after it is created or with unemployment after it is created, but to try to create conditions under which employment will be available, and employment at a reasonable standard of wages. The hon. Member for East Leicester (Mr. Wise), in his interesting speech, suggested that the amount of money that has been spent on unemployment relief and in other kindred ways was a great steadying factor in the internal consumption and production of this country. It may have had that effect to some extent, but how much greater would the steadying factor have been if those people had been earning wages instead of subsisting on unemployment benefit!

On this question of employment and the policy which has been pursued hitherto in this matter, I would like to make one brief observation. There are three types of employment, if I may use broad classifications. There is the employment in making goods which enter into immediate consumption or in rendering immediate services; there is the employment in building the factories and ships which enable the goods to be made and those services to be rendered; and there is the employment in what might be called improving the general plant of the community, its public works, its roads, and other institutions of a national character. Of those three forms of employment, the first, naturally and necessarily, always employs a much larger proportion of the population and gives far more employment for the amount of money spent upon it, because it is continually replacing the capital used in it as the services are rendered or the goods sold. That same process takes place somewhat more slowly when you consider employment upon building a factory or a steamship, but it is infinitely slower, and more uncertain in many cases, when you are dealing with employment on roads, public works, and other services which yield no direct return, though they may in a general sense improve the efficiency of the community. Those in any case can only offer a very small quota of the total employment, and to try to increase that quota by State action and State expenditure, while it may be desirable in an emergency, can only help the situation to a very small extent and at a very heavy cost, a cost which may seriously prejudice employment in other directions.

I submit that over these last 10 years we have carried that policy to the utmost lengths to which it is capable of yielding results, and that we must turn to other methods. Our criticism of the Government is that in regard to those other methods, those methods for creating employment by dealing directly with the production of goods, by creating a demand on the part of the purchaser who is the only ultimate employer, on that side the Government have done nothing or practically nothing. I do not wish to follow up that aspect of the question, but I say that the main criticism upon which we, on this side of the House, concentrate is that over the whole field of domestic, Imperial, and foreign policy, there has been no sign of any clear realisation on the part of the Government that the methods which they have been pursuing are hopelessly inadequate or that there is any intention of embarking upon any line of policy, Socialist, Protectionist, or whatever you like, of bringing about some result which will to some extent bridge the yawning chasm in the national finances. Our criticism is that on neither line do they approach it, neither by administrative economy nor by constructive policy, and both are essential to deal with the situation at the present moment.

If I may turn for a moment from that to another aspect of our situation, of course it is true, and nobody will deny it, that our difficulties in the last year or two have been greatly aggravated by world causes and that other countries have suffered, too; but really, to compare our financial situation—the Budget prospects of next year, on top of the over-taxation from which this country is suffering and the critical state of our industry—with the Budget of the United States of America, which in recent years has again and again lowered its taxes and has plenty of elasticity with which to make good, surely that is not a really fair comparison. In any case, while it is true that we are dealing in a large measure with world causes and that a complete solution of those difficulties may perhaps only be obtainable by international action, that is no excuse for not taking action within our own sphere, within this nation, within the Empire. Nor, as a matter of fact, is it untrue that even these world causes are beyond our power to influence. I believe that in this whole world situation, as more than a century ago, England can save herself by her exertions and the world by her example.

Let me take some of these world causes. Take, for instance, that tremendously grave problem to which my hon. Friend the Member for East Aberdeen (Mr. Boothby) referred in his extraordinarily interesting speech, and to which the hon. Member for East Leicester also referred, namely, the terrible devaluation of all prices during the last few years, as a result both of the underproduction and of the dislocation of gold in the world. I need not labour that point. It is the whole basis of the report of the Macmillan Commission, and in that report the figures that they give indicate a situation even graver than the language of the report itself. They point out that in the last two years the gold of the debtor countries has been transferred to the creditor countries at the rate of some £70,000,000 a year, while barely £500,000,000 are left in those debtor countries as the basis of all their currency systems as well as the means of payment. But since that report was written the situation has changed very seriously. The report of the Midland Bank a week or two ago shows that in the last 18 months the flow of gold to the two main creditor countries, America and France, has been at the rate of £160,000,000 a year, and we have known something about a flow of gold at the rate of £15,000,000 a week in the last few days.

That situation cannot be subject to any complete treatment by any one method. The remission or the readjustment of international debts can only be handled internationally. It may be that only international action among bankers can secure a generally better redistribution of gold. But among the factors upon which they have laid stress in this very context is the tariff policy of other countries and the large positive trade balance of countries like the United States and France, a trade balance which must be paid for in gold, unless they send it back by reinvestment; and their investment policy is not continuous or steady enough to give us much hope of that. The obverse of that favourable trade balance in those two great countries is our immensely unfavourable trade balance. If we can do something to set our trade balance right, we shall at once secure a state of affairs in which the gold, of which we are the original proprietors, but which is at present sterilised and buried, would be available in this country for British finance, with its wide outlook, to distribute and irrigate over the world.

If I may say a word on a subject on which my hon. Friend the Member for East Aberdeen touched, it is this: While by our policy or want of policy, we have allowed debts to be doubled in the West, in the last three years we have halved and more than halved the purchasing power of the peoples of the East. Surely there again we have a subject which deserves consideration, whether national or international action can be taken. The other day I heard the Secretary of State for India, in defending the case of the Government against the charge of having been negligent in dealing with the boycott in India, give a whole series of figures calculated to show how seriously the purchasing power of India had fallen, and how serious was the competition from cheap Japanese goods driven out of the Chinese market by the poverty of China. I do not know that his speech was a justification against the particular charge which he was then meeting, but it is a very significant fact that underlying all the political trouble in India has been the tremendous losses of the people in India in the last few years, losses that affect us not only as sellers of goods to them, but also as guarantors, and explicit guarantors since the recent announcement by the Prime Minister, of the stability of the rupee, of Indian finance. There, again, in a matter where probably very small efforts relatively would make a considerable difference, we ought to sit down and consider whether on the national or imperial plane, or on the international plane, we cannot do something to help ourselves. I do not wish to pursue these points further.

I have dwelt, naturally, upon the grave difficulties of our situation and the disasters which may come upon us unless we change the whole spirit and course of our national policy. I recognise to the full the immense assets which we still possess as a nation, the stability of our whole political system, the capacity and thoroughness of our workmen, the enterprise of our manufacturers, and certainly not least that wonderful mechanism of international finance, which is centred in the great City of London. But if we are to make use of these assets we want a completely new outlook, a new grasp of our affairs. The whole scheme of our national policy needs reconsideration, both from the purely administrative point of view and from the point of view of policy, and above all from the very difficult and highly debatable ground of social reform; whether the right remedy is not an extension of public relief but in obviating the need for it. A new policy of planning, organisation and rationalisation, is needed, and needed first on the national scale, then on the imperial scale, and, as far as it can be obtained, on the international scale, but for such a policy we must get away from old traditions and old prejudices of whatever kind they may be and face the new conditions of a new world with a forward view.


During the course of this Debate we have had speeches delivered from all quarters of the House, but I have not yet discerned any desire on the part of any hon. Member to implement the suggestions which have been made outside this House that there should be any substantial reduction in the wages and standard of living in the country. That policy is not one which would find favour with any party in this House, because we are perfectly convinced, from our experience of the last few years that it would be suicidal. I am not suggesting that there are not individuals who have advocated a policy of drastic cuts in wages and in the expenditure on various services, but the House, if it were given a free vote, would pause and reflect upon what has happened in countries which have adopted such a policy. Since we have been threatened by various committees with substantial economies, and since we have been informed that some of the economies may take the form of cuts in the wages of civil servants and others, may I say something about the situation which has arisen in Germany? Germany is a country which has gone through a phase which it is suggested we should follows A new Government was formed in Germany at the end of 1930, with a new man, Dr. Bruening, who was given virtual powers of a dictator by the President of Germany.

One of the first things with which his Government was faced was the need of balancing the Budget, and the first thing he thought of in order to balance his Budget was to reduce the wages of a class of people who were more easily got at than any other, that is to say, the civil servants and municipal employés. A drastic cut was made in the salaries of all civil servants, whilst Ministers suffered even more severely. There was a general reduction in the wages on the railways, followed by a cut in wages in the metal trades, and this policy has gone on ever since. At the present time the general level of wages in Germany is probably 30 per cent. lower than it was in 1930, and the general drop in the wage level of the working classes has corresponded to a general fall in the price level of commodity prices throughout the world. But when you have reduced wages with the object of balancing your Budget you can only justify that reduction if you are successful in balancing your Budget and, unfortunately, the result in Germany is that there has been no such balancing. Side by side with a reduction in wages there has been an increase of taxation. A number of articles not previously taxed have been taxed, and on a number of articles the tax has been increased. A heavier tax has been put on coffee and on beer, and a still heavier tax on tobacco. Taxation has gone up at the same time as salaries and wages have come down, and the Budget position is worse than it was before.

The law of diminishing returns has operated most successfully in that unfortunate country, which is faced with an ever-diminishing yield of taxation, in spite of the fact that the taxes have been increased. And one must remember that in Germany the income tax assessability starts at £70 a year. All sorts of new taxes have been devised to meet the situation and to restore financial stability, but, in spite of all this, the people of Germany seem resolutely determined not to buy the things they cannot afford. The consequence is that the internal trade of the country has suffered, and the budgetary position is considerably worse than it was when the new taxes were devised and a general cut made in wages and salaries.

The natural corollary of a drastic cut in wages is a general discontent among the people, and if there is one fact more responsible than another for the present disturbed position of Germany it is the drastic reduction made in the standard of living of the people. You have a party which in 1929 only returned 10 members to the Reichstag, a year later, in November, 1930, returning 107 members; that is the extreme party, the Hitlerites, or the Nazi. Its voting strength has increased from 600,000 to over 6,000,000! a considerable increase, and some indication of the great discontent among what may be called the middle and lower professional classes in Germany. At the same time you have a vast increase in the Communist vote, which has gone up to over 4,000,000, whilst there has been no increase in the social democratic vote. That has been the logical consequence of trying to reduce the standard of living in Germany; the disinherited and dispossessed classes have become Nazis, whilst the working people and the industrialists, who have been hit the hardest by wage reductions and unemployment, have swung over to the extreme left.

I am not suggesting that if we carry out the same policy the people of this country will go in the same direction, but one must assume the danger of people getting discontented and being prepared to fly to any remedy. But what has been a further result of the political discontent and unrest in Germany? It has been a loss to the eredit of the country. All these factors have accumulated on this unfortunate country because it has followed out a policy which seems to be advocated by every advocate of economy in this country. All I would suggest is that it is about time we ceased to think in terms of economy of that kind, and adopted the valuable suggestions made by the hon. Member for East Leicester (Mr. Wise) and the hon. Member for Aberdeen (Mr. Boothby) and started thinking in terms of a reorganisation of the banking system of this country and of currency and finance generally.

One hears it very often said that psychology is all important. With all due deference to the fears of the financial community one would like to know whether there is any rational reason for the complete panic that exists at the present time. When I was in Germany, three weeks ago, I found that the whole banking community were panicky, and that the bankers seemed to be subscribing to the general panic. I asked myself, why this sudden collapse of faith in what is virtually the strongest Government which Germany has had since the War? Why has there been any panic amongst the bankers and financial community in the City of London? Apparently there has been or the Chancellor of the Exchequer would not have had to reassure the world that the credit of this country stood as high as ever it did. The credit position of Germany stands as high as ever it did, or it should, because there is nothing radically wrong with the German people or with the people of this country. I assume that there is something radically wrong with the psychology of the financiers and bankers of the world.


The hon. Member for Wandsworth Central (Major Church) will excuse me if I do not follow him in his interesting observations regarding the course of events in Germany, but I would like to make this remark, that both the hon. Member for Wandsworth Central and the hon. Member for Leicester, East (Mr. Wise) left out of account altogether, in discussing the difficulties of Germany, the experience which that country went through when its currency was inflated to a degree never before witnessed in European history since the French Revolution. It appears to me that to some extent to-day the difficulties in Germany are created by the lack of faith of Germans in their own currency—a lack of faith which was created when the inflation took place. I mention the matter now because it may have some bearing on our discussion when hon. Members are talking of our own monetary problems. It is a very difficult question, and I do not propose to dogmatise upon it. It appears to me that if you start to tamper with the value of your currency, you are immediately in danger of having exchanges fluctuating in a violent manner, and to a country which does such a large world trade as we do, that is a danger which has to be taken into account very seriously before adopting any scheme for altering the basis of our currency. The causes of our depression lie far deeper than mere currency matters. Mere currency reform, though there is great scope in it, seems to me to be merely playing with the surface of the question.

I do not propose to discuss the condition of Germany, but to take advantage of this very rare opportunity to say a word or two about the condition or our own country. It is remarkable that opportunities for discussing these matters are so rare. This country has never had an easy time, and I think that if anyone were to read the past reports of our Parliamentary Debates, they would say that, broadly, there was some relation between what was discussed in those Debates and the events that were going on in the country at the same time. But I defy any future historian to make an accurate picture of what has been happening in our country from a study of our Parliamentary Debates during the past Session, unsupported by other material. He might be pardoned for thinking that we were very prosperous, because we have been able in the last two years to raise the taxation of our citizens by 30s. a head. He might be pardoned for thinking that we were free from real difficulties, because we can waste so much time discussing academic questions, such as the way in which people should vote. He might be pardoned for thinking, from our Parliamentary Debates, that no pressing and immediate financial problem troubled us, because we could give up practically the whole of our financial discussions this year to discussion of a tax which is not to come into operation for two years and which during that period is going to cast an additional burden on the Exchequer.

But, unfortunately for our reputation, there are other materials which will be at the disposal of any future historian. There will be the trade returns, showing a very serious shrinkage in our exporting power, while at the same time the volume of imports into this country has been such that our trade position does not put us in a position to pay for them. There are the figures of unemployment, of agriculture, which show that at this time that old industry is going through a crisis more severe than the oldest man in it remembers. There are these matters, together with incidents of works closing down and other things, which will lead any historian to see that our times are by no means as rosy or as free from difficulty as our Debates in this House, unsupported by other testimony, might lead the historian to imagine.

We have had to-day from the Chancellor of the Exchequer a very grave speech on a very important subject. In itself a warning about the condition of the country and the steps necessary to meet it, it is bound to do good if it is followed by action. But these repeated cries of alarm, unless they are followed by action, can do nothing but harm. We have had them before. We had a speech of almost the same character from the right hon. Gentleman on a previous occasion. But nothing was done. The right hon. Gentleman and those outposts of his, the innumerable committees created by this Government, have been giving cries of alarm about our impending dissolution unless we take certain steps. But nothing has been done. There has been all the alarm, but none of that healthy reaction to the alarm, no call to the nation to summon up its blood and stiffen its sinews to meet the emergency. If on this occasion this grave utterance is to pass without anything being done, our condition will be deteriorated by it; but if, on the other hand, it is a prelude to some definite effort to call the nation's energies together to meet the danger, it can do nothing but good.

I think there are many Members in all parts of the House who, while realising the unpopularity and difficulty of such steps as may be necessary, will be prepared to support the Government if they bring forward well chosen measures of economy. There is one economy which has often appeared to me to be possible. It seems to me that we are spending, or urging our local authorities to spend, far too much money on roads. It made one wonder a little when last Friday, up in the Lothians of Scotland, the shale industry, one of our only national sources of oil supply, was forced to close down and to dismiss 2,000 workmen, while at the same time local authorities are spending vast sums on roads which no one but those fortunate enough to own high speed motor cars is ever likely to use. In that direction we have gone too far; we have spent too much; we have overburdened our people with a toll to pay for a necessity which is not important enough to warrant the capital and the recurring expenditure upon it.

We are now going to part for a holiday which I hope has been well earned, and during that period no legislation can be passed. So it is fitting that a Debate of this character, in which legislation cannot be discussed, should come at the end of the Session. But during the Recess no doubt there will be speeches and gestures made by all parties to their supporters. There are two matters which I would urge upon the Government with great respect as the sort of gesture which they might make during the vacation in order to restore some part of that confidence upon which our prosperity as a nation depends. The first is the matter that I have mentioned, a real determination to pursue the path of wise control of expenditure. The other is to try to get rid of a feeling which is spreading throughout the country, and the trading community in particular, that the Government is not considering enough the changed conditions which confront us as a nation. Reference to this subject has been made by speakers from all parts of the House.

Attention has been drawn to the greatly changed conditions in which we as a nation are placed to-day, and to the feeling, which gives rise to a lack of confidence, that the Government are as bound to 19th-century methods of considering our whole system—I do not refer to any particular part of it—as a tramcar is bound to its rails. It appears that it can only clank and jolt along ways that were laid down when this country was a very different factor in world trade. They jolt along, they occasionally stop to pick up a few passengers from hon. Members on the Liberal benches; they sometimes stop to put down a few, represented by the hon. Baronet the Member for Smethwick (Sir O. Mosley), who hurry off with every sign of having had an uncomfortable journey. So they go on, still held as fast to an out-of-date conception of our country as a tramcar, an obsolete vehicle, is held to its rails.

If the Prime Minister, that master of gesture who has made so many telling gestures to foreign nations, could make a gesture to the people of this country to the effect that he and the Government realise that we are living in times very different from old times, and that, to continue the metaphor, he is prepared to try to take an omnibus, a more elastic method of progression than the old tram, I think there would be fresh hope in the country, a hope sadly lacking now. Those are matters which must be left for the Government to decide. But as regards long-range affairs it appears to me that a great part of our distresses at the present time result from a sort of gamble played last century which did not quite "come off." We did that when we set out to be a country entirely dependent on foreign trade, a country that could neglect its agriculture with immunity so long as it could command markets abroad which would supply it with the means of buying food from foreign countries. That stage in our development has passed and passed for ever. Unless we set about conserving our own native resources as a nation, we shall not see those happy times which we all hope will follow for this country.

When we talk about the state of agriculture now, let no one imagine that it is the ordinary grievance of agriculture which comes up at various times. I can tell the House that this harvest the farmers, the smallholders and the market gardeners, are faced with a situation of unparalleled difficulty, that in many cases they have not the wages to pay the workers in the harvest, and that there will be thousands of agricultural labourers thrown out of work this autumn and winter unless something is done. I know that at this moment we cannot discuss what ought to be done. But again I think that a great part of the difficulty of the agricultural industry to-day arises from the way in which it seems to be denied all prospect of relief for present necessities. True we have had the Government's contribution towards the agricultural problem. It seems to me to suffer from one defect, which runs throughout.

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You have them, for example, providing more council houses, when what is wanted is really some money to put old houses into a habitable condition. You have them envisaging great plans for settling more men on the land, when what is really wanted is that the men now on the land shall have a chance of making a livelihood. You have them producing plans for reclaiming areas of land now not under cultivation, when what is wanted is to give the land under cultivation some chance of returning a livelihood to those who labour upon it. It has been called a far-seeing policy. But I cannot think that it is far-seeing, except in the sense that it shuts its eyes to what is near. I cannot think that it is a bold policy with regard to anything except a fictitious future. As to the present needs of the industry it is completely timid and lacking in any grip or relevance. If we could revive the balance of this nation we should get in the agricultural community a large purchasing power for our own commodities which would react in the most favourable manner upon our industrial community. We talk about giving credits to Russia and other hostile places. Why should we not try and develop our own native estate? As regards the future policy of this country, if we are to avoid those distresses which we have lately suffered, we must take that course which the ordinary man who is in difficulties takes when he finds foreign resources departing, when he is let down by allies and reserves abroad, which he thought were safe. The ordinary man in those circumstances tries to re-establish his own spirit and to recreate his own energies. If we, as a nation, adopted a policy of this kind, we should see arise a country which would be more stable, more civilised and happier than the one we are in to-day.


As I represent a constituency which is a near neighbour of the constituency of the last speaker, may I say that I heartily endorse every word that he said in his interesting speech in regard to the agricultural industry in that part of England? I want to make a few observations on one aspect which has been touched upon to-day, namely, the monetary position. As an ordinary member of the public, not a financier or economist, trying to find a solution for our present difficulties one looks for some lead towards the eminent economists and professors who make pronouncements on these matters. I have studied with some care and diligence the weighty report of the Macmillan Committee. My observation upon that report is, that when one finds in it some definite recommendation, one thinks: "Here is one solution for the existing problem," and then one reads further, in order to find enlightenment on the subject. What happens? One finds arguments against pursuing the very course which has been recommended a few pages earlier. In fact, if one continues to read the volume one finds a recommendation by one or more members of the committee, saying that in this or that respect they cannot join with their colleagues in suggesting it as a solution for the particular problem. No doubt next Session we shall hear from the Government what course they intend to adopt and what proposals they intend to present to the House in relation to the report. All I can say is, that the report should give hon. Members every reason, pro and con, for defending or attacking whatever suggestions the Government adopt.

We have heard to-day and at various times that gold, or the mis-use of gold, or the lack of gold, or the plethora of silver are the chief causes of the economic position in which we find ourselves today. We have heard that the world's volume of production increases each year between two and three per cent., and we find that the gold supply is increased by 2 per cent. every year, but when we take into consideration the fact that France in the last two years has absorbed the whole of that 2 per cent. increase of gold and more besides, it is obvious that the gold factor has played a very significant part in dictating the prices of commodities that rule to-day. In the United States of America there are £890,000,000 of gold, in France £450,000,000 and in this country, always considered to be the banking and financial centre of the world, only £130,000,000. That illustrates the point that the mal-distribution of gold has played no insignificant part in producing the present economic crisis.

A group of individuals, headed by Lord D'Abernon, believe that the crisis could be remedied almost in its entirety by a change in the monetary system. They argue that commodities in the last few years have fallen, while gold has appreciated. The position is put very concisely in one sentence by Lord D'Abernon, when he says: The gold standard of the world has become unstable. If it had so happened that the world had chosen wheat or copper or cotton as the standard of value in the place of gold, instead of commenting on the disastrous fall in prices, we might be endeavouring to explain the remarkable stability of price of the main articles of consumption. Compared with one another, the wholesale prices of individual commodities have altered comparatively little—all have been out in the rain together: what has altered in the last five years is the purchasing power of gold. I have no desire to stress that point, which has been made this afternoon. Those who support this policy say that it is a simple matter, that there is no crisis at all and that it simply means that we have to change our monetary system. If it was as simple a matter as that, I could not believe that some further steps would not have been taken to introduce the necessary reform. Any action along those lines, to be effective, must be taken not by this country alone, but on an international basis. Whenever we have to take international action, as we have seen in the last few weeks, there are always innumerable difficulties put in the way of arriving at a common solution. One reason for the mal-distribution of gold is to be found in the artificial payments of gold from one country to another in the form of reparations of War debts. If we are to solve the world problem, especially the European problem, the United States of America will have to face the question of War Debts, and France will have to face the question of reparations. If it were possible for America to extend the Hoover scheme for five years, I believe that alone would do more to remedy the situation in Europe and restore confidence than any action in regard to gold or silver or any other commodity that we might take.

In regard to silver, Professor Dampier Whetham, of Cambridge, recently put forward his views, and I have not yet heard from the Government or from any financial expert any really cogent argument against his suggestion. Professor Dampier Whetham is not a bimetallist. I have always held the view that you must have one standard or the other. His scheme is briefly this, that we should arrange with the United States of America to pay a portion of our debt to them in silver at the market price of silver, and that the country to which we paid the silver, whether the United States or some other country, could use that silver in the open market to buy gold. By these means you would appreciate the value of silver. That scheme is supported by very eminent economists, and one would like the official view of the Treasury upon it. I believe it to be within the realms of possibility that the silver producing countries, India, Mexico and the United States, could get together and control, if not the amount of silver they produced, at any rate the amount of silver that they sell. I do not think any further argument of mine is needed to demonstrate what an incalculable benefit it would be to this country, to the United States and to the whole world if we could do something to stabilise silver.

I should like to refer to one point which was put forward by the hon. Member for East Aberdeen (Mr. Boothby) in his extremely interesting speech. Some people argue that the economic problem is the result of overproduction. The hon. Member for East Aberdeen asks how there can be overproduction if millions of people in various parts of the world are to-day without the necessary articles that they require. In this matter there is a slight confusion of thought. In my opinion there has been and is to-day no overproduction of manufactured articles, but there is over-production of certain primary commodities—wheat, tin, rubber, and until we can find some new nation, or until we can educate, say, 400,000,000 Chinese to consume wheat instead of rice, the supply of wheat produced in the world to-day will be more than can be consumed by those people who eat wheat. In regard to rubber production, it was thought that when we increased our supplies of rubber, new methods, new inventions would be found for using the rubber. They have not been found. Consequently, we have overproduction in these various commodities.

This follows, that the number of people who are engaged in producing primary products and commodities, on the most conservative basis, outnumber by 10 to one those who produce manufactured articles. Therefore, it is obvious that when you have got a large proportion of the population of the world engaged in producing primary products, and unable to produce those products to sell at a' profit, if they are able to sell them at all, the majority of the markets of the world are closed or very strictly rationed and limited. We in this country are particularly interested in this matter. The Macmillan report points out that one-third of the workers in this country are directly depending for their livelihood and wages upon exports. Exports? To what countries? To those countries that produce those primary products. Therefore, it is obvious that until that situation is remedied there will not be much improvement in the state of trade and industry in this country.

We have seen in the last few days that the Bank of England is thinking of negotiating with the Bank of France for a loan of £20,000,000. The Chancellor of the Exchequer in his speech today emphasised the gravity of the situation. I cannot think of anything that brings home the economic crisis which is pressing in this country more than the fact that we, who have prided ourselves on being the bankers of the world, the financial centre of the world, are at this moment being put in the position of trying to borrow £20,000,000 from a country 65 per cent. of whose debt to us we have remitted, and a country who has depreciated its currency by 75 or 80 per cent., to the great cost of innumerable people in this country. I understand that when there is a great drain of export gold from this country the usual method is to put up the Bank rate. As I understand it, the process works like this, in regard to your exports, visible and invisible, that once the Bank rate goes up you get a proportion of those exports repaid to you in the form of gold, and then the situation rights itself.

To-day it is very questionable whether our exports visible and invisible do exceed or even equal our imports. Therefore I am informed that the method of putting up the Bank rate may not, in the long run, be sufficient to-day to stem the exodus of gold from this country. I think it very deplorable that we should have arrived at this position because not only does it influence our financial position but it will also influence our political position in the future. Naturally France or America or whatever country may lend us money will lend it to us short, so that, if our views on foreign affairs should not coincide with theirs, it may well be that on some future occasion they may, as has happened in the past, squeeze us, with the result that we shall either find ourselves in a serious economic position, or have to fall into line with their political policy whatever it may be. We have already had stressed to-day unemployment and high taxation and the very high cost which our incomparable social services—described as such by the Prime Minister—entail to the country. It may be flattering to us as a nation that we have the best social services in the world, but it is a matter which has to be reckoned with when we are considering our finances and what we are able to afford to-day. We have had in the last week a true picture of the state of agriculture in many parts of the country and taking all these matters into consideration, it is obvious that the prospect is not a rosy one.

I admit that in matters of monetary reform, if anything is to be done it has to be done on international lines to be of any use, but I submit that there are other things which we can do of an internal and domestic nature. There are steps which we can take to set our own house in order. Some months ago the Chancellor of the Exchequer told us that all sections of the community would have to make sacrifices if the situation was to be met and a solution found, and he also told us that the Cabinet would set an example to the country in making those sacrifices. We have not heard yet of any fulfilment of those suggestions. Perhaps when we read the May report to-morrow we shall find some of these sacrifices incorporated in it and I am certain that the Chancellor of the Exchequer will receive the support of Members on these benches in asking the country, as a whole, to accept whatever sacrifices may be deemed necessary.

Various speakers have stressed the fact that although the superstructure of this country may be in a difficult position, fundamentally we are still sound. We have some £4,000,000,000 of foreign loans—long-term loans, of course—but I fear that at the present moment a very large proportion of these are in the condition which is known as "frozen." Nevertheless I think that demonstrates the innate, fundamental solidity and stability of this country. I believe that we are a peculiarly adaptable and flexible people, and that we can accommodate and acclimatise ourselves to whatever conditions may be necessary to restore prosperity to industry. It is a trite saying that in the past we have won our battles because we have never known when we were beaten, but I believe that, however depressing the existing circumstances, may be we shall also win the economic battle which we are fighting to-day. I am convinced that we shall, to use a common phrase, stage such an industrial come-back as will surprise not only ourselves, but the world at large.


I imagine that it would be no misdescription of this Debate to say that it has consisted in a request from His Majesty's Government for more rope. As the Debate has proceeded in an atmosphere of low party temperature I do not specify the cause for which that rope is required. The right hon. Gentleman the Chancellor of the Exchequer has announced that his intentions towards the report of the May Committee are honourable. It requires, of course, an act of faith for us at this time of day to have any confidence in an expression of intention on the part of His Majesty's Government, but as, in the immediate future, the opportunities for dealing with the situation will be limited by the holidays, one has to be content with that expression of intention. I should like in pass- ing to express my surprise as regards the report of the May Committee, that its contents appear to be known to everybody except to the House of Commons.

On this occasion there is no intention at all of advertising the difficulties in which the country stands. Unfortunately they are too clear. The intention is to seek remedies, but, in order to seek remedies for those difficulties, which are all too clear, it is necessary to be very frank about their nature, and frankness demands that it should be stated, as simply and as directly as possible, that the immediate cause of the difficulties of the country at the present time is an unbalanced Budget. It is never any satisfaction to be right when you have been prophesying misfortune, but Members on this side of the House can, I think, say that they were right in calling attention, at the time of the introduction of the Budget, to the circumstance that within recent history it is the first unbalanced Budget in this country. They foretold that the effects of that Budget upon the national prosperity would be precisely what they have proved to be. The great credit crisis in which the country finds itself is the direct consequence of the circumstance that our Budget is unbalanced. Of course, in foreign countries, it is not understood that the circumstance of the unbalanced Budget is not due to any fundamental weakness in the economic state of the country. It is not understood in those countries that it is due to the spendthrift and careless policy of the present Government. They do not understand that as we understand it, and they cannot be expected to do so. As foreign onlookers they draw the natural conclusions from the circumstance that our Budget is unbalanced. The first natural consequence is the credit crisis in which we find ourselves.

However much rope we may be disposed to give the Government, surely we should not be content to separate on this occasion without a more satisfactory explanation of the measures which the Government propose to take to balance the Budget. I do not think that any Government of this country should be allowed to escape its responsibilities, under the cover of any committee, however strong that committee may be and however much hope we may build upon its report. It appears to me deplorable that we should separate for the Parliamentary vacation in the present crisis without any account from the Government of what action it contemplates. It is not as if things were only as bad as they were when the Budget was introduced. The Budget was unbalanced when it was introduced; £20,000,000 was brought in from the Exchange Fund. That was on Capital Account. By the most sublime act of ostrich-like blindness of which a Government in this country has ever been guilty, the Government completely ignored the borrowing, at the rate of £1,000,000 a week, for unemployment insurance.

If the Budget did not balance when it was first introduced, still less does it balance now when the load of unemployment debt has gone from bad to worse, when we have added the additional burden of £10,000,000 from what we may call the Hoover action, and when we see the inevitable circumstance, which we on these benches foresaw, of gradual accumulations of Supplementary Estimates. Under these conditions, let us look a little deeper. We shall see another circumstance. The failure of the Budget to balance is no doubt the immediate cause of the present crisis, but there is a cause deeper still. It is the failure of the country as a whole to live according to its means. I say that it is no satisfaction to us on this side to be right in foretelling evil. But we did foretell precisely such a consequence as the present credit-crisis from the circumstance that at the present time the country is not producing wealth sufficient to support the standard of living that it is enjoying. It is that circumstance that is the deep-seated cause of the present trouble.

We are living on our accumulations. In order to see that this is so, it is only necessary to look at the figures of our foreign investments. They have dwindled down until they are on the point of disappearance. The connection between that and the present credit difficulties is direct. We have lost the power of controlling the credit situation given us by a strong position as regards foreign lending. That is at the bottom of those symptoms of discomfort from which we are suffering. It appears to me that there is a failure to realise our position, not only on the part of the Government, but in the country at large. Why are we so discomposed at the circumstances of the present time as regards our relations with other creditor nations—with France and the United States? Is it not because we are now in this relation for the first time, that we are no longer preeminently the first in strength of the creditor nations of the world, that we have for the first time to deal on an equal footing with other creditor nations? The adjustments, bargains, and relations which are the result of that equality are to us strange and uncomfortable?

There is another circumstance which appears to mo to emerge clearly from this Debate, which leads one to seek to strike a slightly different note in our proceedings. In many speeches one has heard our present difficulties discussed as if they were entirely a matter of monetary factors. I believe it to be a most profound error to suppose that our difficulties at the present time are wholly monetary difficulties and the result of monetary factors only. Let me not belittle the useful work done in clearing up the present situation by the Committee that was presided over with so much ability by Lord Macmillan. It has done very good work in clearing up the situation, but the effect of it, I suggest, has been somewhat to misdirect national thought and national energy, At the present time it is indeed not the case that monetary factors alone are at the bottom of our troubles, or that the remedy that we should seek is a monetary remedy only. The argument to which one has listened to-day, and the argument which is so widespread in the country, appears to be this: The cause of all our trouble is that prices have fallen; it needs then only to raise prices by a manipulation of the currency and credit system and all will once more be well.

I believe that remedy to be precisely similar in its nature to the old device of seeking to keep the spring in by building a wall round the cuckoo. It cannot be effective for the purpose for which it is intended. It is not even contended that world prices can be raised on the international scene. The organisation of the nations of the world and the central banks of the world is inadequate for that purpose. The remedy to be applied then, if it be applied, must be to raise prices locally here in this country. How can that possibly serve any useful purpose in the long run? In the first place, let us consider this. You cannot raise prices locally in relation to world prices without casting the value of your currency adrift from gold. You must thereby set its value vacillating as regards the values of the other currencies of the world. That would have two disastrous consequences, so evil that they would outweigh any temporary good effect that would be produced by raising prices by this means. The first would be a final shattering of the confidence of investors in their investments, and a final blow to the savings habit on which the prosperity of the nation is built up. That is the first evil consequence. The second must be that once you sot the value of our currency vacillating, as you inevitably must if you try to raise prices only locally, you produce those conditions of uncertainly as regards exchanges which makes international trade practically impossible. If we are to abandon hope of recovering prosperity in international trade, in our export trade, a prosperity which can only be secured by stable exchanges, we are abandoning hope indeed.

There are other considerations. What is the use of raising prices unless you can be sure that the costs of production are going to stay down, and what guarantee can there be, if prices are raised here locally in this country that the costs of production, and particularly of wages, are not going to rise with rising prices, so that you will arrive once more at precisely the same position in which you are now? Finally, the remedy is supposed to be this—that you would raise prices by this local action until you brought prices once more into harmony with present wages and costs of production. But what guarantee can you possibly have in this world of imperfect organisation in which we live that, when you raise prices, you are going to stop at the right point? If experience teaches us one thing, surely it teaches us that once you admit the possibility of inflation, for it is nothing else, it is perfectly impossible to stop at the theoretically justified point. You are forced onwards until you reach a measure of inflation that is agreed by ail to be disastrous in its effect upon the general prosperity of the country.

When I hear people advocate these monetary remedies for our present difficulties, I desire urgently to ask them another question. It is this. Suppose that you carry out this alleged monetary remedy, recommended in one form or another by the Macmillan Committee and by speakers in the Debate to-day, and suppose you do so with the utmost degree of theoretical success and perfection, and suppose you stop at the right point in your inflation; suppose even that the arguments to which I referred are baseless and that those evil consequences are not involved, have you not still to consider this, a matter vital to your hopes? When you have done all this, what have you done to remove the fundamental disharmonies and dislocations which are known to be at the bottom of the lack of prosperity at the present time? After you have carried out this measure and have applied your monetary remedies, you will have the same difficulties as regards the disproportionate share which is taken out of the national earnings by the sheltered trades. You will not have done anything to remove the undue height of wages in the sheltered trades in comparison with other trades.

There is another difficulty that would still remain. After you have carried out this partial measure of inflation, just as before, you will still have one of the deepest existing causes of the present dislocation of trade, the disharmony between the prices for agricultural prime products and the prices for manufactured articles. In the view of some, a view which is entitled to much weight, that is at the very bottom of the troubles at the present time—that too much of the increase of prices which resulted from inflation during the War has been obtained by the manufacturers of manufactured articles in relation to the prime producers of agricultural and mining produce. What guarantee can you have, if you adopt these monetary remedies, that you will not be accentuating the disharmony between the two? Another of the deep-seated causes of the difficulties of the present time will still exist. I refer to it without hesitation, although it is a highly controversial matter with hon. Members opposite. You will still have the inertia of wages, which, owing to our powerful system of trade union combination, prevents wages from reacting to movements in world prices. You will have done nothing to prevent that difficulty in the economics of the present day.

What will you have done to correct the deep-seated evils which come from the admitted abuses of our present system of unemployment insurance? We have argued before, and no doubt we shall continue to argue for some time, that one of the things that most stand in the way of trade recovery is the demobilisation of capital and labour by the abuses of the unemployment insurance system. Owing to its present method of administration it keeps labour stagnant, looking to trades from which it can never expect employment again. It keeps capital demobolised in decadent trades when the brightest hopes for the future of the country must depend upon that capital looking elsewhere for fresh employment, to new trade. Capital and labour are both demobilised by the present system of unemployment insurance. These monetary remedies, these banking remedies, these superficial palliatives will do nothing to deal with that deep-seated evil.

The next consideration, and perhaps he greatest of all, is what can you do by these palliatives, these monetary remedies, in order to correct and reform that greatest of all our evils, upon which our attack has been ceaselessly directed, and which has been so ceaselessly promoted by the action of the present Government, the deep-seated evil of over-taxation? It is the heavy burden of our taxation which, more than any other factor, is pressing us backwards in the race with our foreign competitors. This is not just a vague matter, it is not merely the disinclination of persons to pay direct taxation; it is a direct economic effect, of which you can trace the working in commercial life from day to day. By the excessive burden of taxation in this country in comparison with our foreign competitors you produce two specific evil effects. You prevent the investment of fresh capital in this country, and you drive fresh capital which might be invested here, to investment in other countries where it has an easier burden of taxation to bear. Most fatal consequence of all, you produce the general impression that effort in this country is prevented by the laws of the country from earning its due reward, and that therefore this is the country in which it least pays to make the effort necessary to improve trade.

All these deep-seated evils are promoted from the extravagant policy of our Government. There are no remedies to be found for them in those easy paths of the manipulation of our banking system, our system of currency or our system of credit. I suggest that there is a profound error underlying much of the approach towards these question on the part of some. I must not use the phrase, "The great illusion," because that has been monopolised by a distinguished Member of this House, but let us call it "The great error." The great error, I submit, is that the great slump from which we as well as the rest of the world are suffering, is a slump due to monetary, banking and credit causes alone. What evidence is there of that? What evidence is there that trouble has been caused in the world by a deficiency of currency or credit? One may freely admit that in the latter and the aggravated stages of the great slump there has been a deficiency of currency and credit, but there is no evidence whatever that there was any such deficiency during those periods which were obviously preparing for the great slump, and in which one must look for the true causes of the slump.

Further, even now that there has come to be a deficiency of currency and credit, is it not perfectly clear that the deficiency is due not to a true deficiency of the supply of that essential raw material of industry, it is due to a lack of confidence? This is a confidence crisis, and not a currency crisis. What is amiss is not a lack of capital, that essential raw material of industry. Capital is there accumulated in deposits. But people have not the courage and confidence to use that raw material of industry. If I may say so in a Debate which has proceeded in such a low temperature of pary controversy, the confidence of the investor has been shattered by the reckless and spendthrift policy of the present Government.

We must look to harder courses than these ingenious currency expedients to find a remedy for our present difficulties. We must look right down to the basic circumstances of the time, to the deepest principles of policy, into the deepest psychology of the national mind. I am in hearty agreement with my hon. Friend the Member for one of the Divisions of Wiltshire when he attributed the original cause of the present slump not to these banking factors but to the factors which may be conveniently summarised in the word "over-production." Over-production is due not to one circumstance but to many. It is due to the great increase in the area which has been brought under cultivation following the spread of civilisation throughout the world. I mention only the one instance of the enormous increase of culture in our Colonies and East Africa, which are now capable, in common with the Colonies in Central Africa, of producing tropical products almost sufficient to supply the world. Another area to which the same amount of attention is not directed is Manchuria, where there has been a vast increase in the production of the cheaper forms of agricultural produce owing to Japanese enterprise. That is one factor; but a factor more important, no doubt, at the present time is the improvement in the technical methods of production of agriculture and of industry, leading to a sudden flood of the goods the world desires in excess of that which it can consume. I will instance one example which happens to be known to me in my constituency. It is the example of hops. Owing to technical improvements in hop-growing, the result has been achieved that, whereas formerly about one crop of hops in every two was a failure, now every crop is a success, and the result is that there are more hops than the world knows what to do with. Other factors with which we are more interested in this House are political factors. National consciousness throughout the world has been strengthened, and this has resulted in increased national competition, which takes the form of the legislatures of the world resorting to every resource that is known to promote and increase their national production of essential commodities. If I ventured to go into the moral to be drawn from that, I should be out of order for I should have to suggest that we should do the same for our country, and I should be led into dealing with the necessity for us taking an example by the rest of the world and making use of tariffs, in our race of competition with the rest of the world. But the matter is pertinent to my object to-day, in pointing out the principal causes of increased production.

Lastly, and by no means the least, as a factor in increasing production comes the growth of financial combinations, formed to enable producers to hold up their crops for a better market. The effect of this is strong. It reduces the effect of the old law of the elimination of the weaker producer by falling prices. That has been prevented in important cases by the defensive force of capital. Such natural causes as these are at work, causing over-production and falling prices, and thus creating the difficulties under which we labour. These natural factors underly the monetary factors. I suggest, after listening to the speeches which have been made dealing with the monetary factors, that this country will be misled if it looks for a way out of those difficulties by a monetary remedy. The causes of our difficulties are not monetary alone, and they cannot be remedied in that way by a monetary remedy alone. What action can then be taken? Let us not exaggerate what a Government can do. A Government cannot do everything, it can do something, but not much. Our complaint is that the present Government does nothing. There is one thing which a Government can do, and one thing alone of such transcendent importance in comparison with any other thing that it is hardly worth the time of any hon. Member of the Opposition to dwell upon any other thing. The Government can economise—it can avoid misleading the country by trying to make people believe that we have an unlimited reserve of capital. The Government can do the country a great service by telling the people that the present standard of living cannot be supported without earning it. That is what we demand that the Government should do. The Government should make its Budget balance, because that is the test of the self-control of the country. That should be done as an example. If the Government runs into debt and consumes more than it produces, how can you expect every householder in the country not to do the same thing? The Government can do a great service by ceasing to delude the country into the things that it can go on supporting the present standard of living without earning it.

But what does the Government do? We are parting under circumstances which give the gravest doubts. We make no exaggerated claim of what a Government can do, but at the present time if our ship is to reach port it must have someone at the helm, and at the present time there is nobody at the helm. In regard to financial policy, at the present time the ship is steering no definite course, and there is no sign of their being any steam on the engine. When we meet again, the country will require a fulfilment of the solemn undertakings of the Government that they will deal seriously with the report of the Macmillan Committee. Then will be the time to review, at the earliest opportunity, the extreme necessities of the position, and to demand remedial action.